Ottawa’s rental housing vacancy rate drops in 2022 despite surge in construction: CMHC

January 26, 2023

The Canada Mortgage and Housing Corp. says the city’s vacancy rate for purpose-built housing dropped to 2.1 per cent last year, down from 3.4 per cent in 2021, due to “strong demographic and economic fundamental conditions.”

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Ottawa’s rental housing market heated up in 2022 as students returned to university and college campuses and more people moved to the city from other areas, a new study says. The Canada Mortgage and Housing Corp. says Ottawa’s vacancy rate for purpose-built housing dropped to 2.1 per cent last year, down from 3.4 per cent in 2021. The agency cited “strong demographic and economic fundamental conditions” for the surge in demand for rental housing. It said the number of new permanent residents who planned to live in Ottawa rose nearly 50 per cent in the first three quarters of 2022 compared with the same period in 2021. CMHC said the return of post-secondary students, who make up a significant chunk of the city’s non-permanent residents, also helped fuel demand for rentals. While vacancy rates fell in several neighbourhoods, the biggest drops were seen in areas surrounding the city’s two universities. In Sandy Hill/Lowertown near the University of Ottawa, the vacancy rate dipped to 2.1 per cent from 5.3 per cent in 2021, CMHC says. The downtown vacancy rate stood at 1.3 per cent, while the Glebe/Old Ottawa South area close to Carleton University had a vacancy rate of just 0.7 per cent. The housing agency said rising employment among 15- to 24-year-olds also helped create new renter households. In addition, CMHC noted that even though Ottawa’s resale housing market has cooled over the past 10 months, some potential buyers are staying on the sidelines and continuing to rent, further limiting the amount of vacant units. “Rapidly rising prices and higher mortgage rates may have slowed transition to homeownership for some renter households who had considered buying in 2022,” the report said. “These households have possibly remained on the rental market, thereby increasing demand.” CMHC said that while a “considerable number” of new rental units have been constructed over the past three years and some commercial buildings are now being converted to apartments, that additional supply is still not enough to meet demand. “There’s potential for acceleration of new construction in the rental market,” CMHC senior analyst Lukas Jasmin-Tucci told OBJ on Thursday. As vacancy rates have dropped, rents have risen. CMHC says the same-sample average rent for a two-bedroom apartment in Ottawa rose 4.8 per cent last year to $1,625, much higher than the year-over-year increase of 1.3 per cent in 2021, when Ontario imposed a rent freeze and overall vacancy rates were higher. The study also found the average rent in apartments that were leased to new tenants was about 17 per cent higher than in apartments that did not turn over. CMHC said the average rent in a two-bedroom apartment that kept the same tenants in 2022 was $1,520, compared with $1,831 for units that were turned over to new renters. “Ottawa … was seen as a very affordable market for many years, and this has changed a little bit in the last three or four years,” Jasmin-Tucci said. Rising rents have prompted more renters to stay put rather than look for new housing, the agency added. The turnover rate for rental housing in Ottawa fell from 22.8 per cent in 2021 to 16.8 per cent last year. “Over the past year, this hesitation to look for a new home was renewed by the significant drop in vacancy rates and the increase in rents for vacant units,” the report said. Meanwhile, CMHC said the city’s vacancy rate for rental condominiums held firm at 0.5 per cent last year as construction of new units slowed and the percentage of condos available for rent stabilized. The average rent for a two-bedroom condo stood at $2,075. Across the river in Gatineau, the vacancy rate held relatively steady, falling to 0.8 per cent from 1.1 per cent in 2021. “Supply and demand both experienced strong growth, resulting in a stable vacancy rate,” the agency said. CMHC said demand for rental units in Gatineau was fuelled by an influx of students and new permanent residents, including immigrants from other countries as well as newcomers from other provinces – especially people from Ottawa looking for cheaper housing in Quebec. Those factors combined to help drive up the average rent for a two-bedroom apartment in Gatineau by 9.1 per cent last year to $1,269 – the highest annual increase since CMHC began tracking such data. More than 2,000 new rental units were added to Gatineau’s inventory in 2022, nearly 10 times as many as were completed just seven years earlier as developers scrambled to keep up with rising demand. Jasmin-Tucci said that while rising construction costs might slow the building boom somewhat in 2023, he still expects new units to be added at a steady clip. “There is strong demand, so there is obviously a need to continue on that trend of building more rental units,” he said. Across the country, CMHC says last year’s surging rental market left the country with the lowest vacancy rate for purpose-built rentals since 2001. The federal housing agency says the vacancy rate for such properties sat at 1.9 per cent last year, down from 3.8 per cent a year earlier. The fall reflects a widespread tightening CMHC saw in the rental market as immigration ticked upward and higher mortgage rates made it harder for renters to purchase properties. The tightening was stark in Vancouver, where the vacancy rate edged down from 1.2 per cent in 2021 to 0.9 per cent last year, and Toronto, where it dropped from 4.4 per cent to 1.7 per cent. Montreal's rental market reached 2.3 per cent from 3.7 per cent a year earlier and Calgary’s vacancy rate moved from 5.1 per cent to 2.7 per cent, the lowest level since 2014. CMHC says such plunging vacancy rates weighed on the average rent for a two-bedroom purpose-built rental, which climbed 5.6 per cent to $1,258, and the average two-bedroom rental condo rent, which jumped nine per cent to $1,930. – With additional reporting from the Canadian Press