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Moishe Alexander’s review of the Regina CMA Rental Market and CMHC Outlook Report Fall 2008

February 23, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Regina CMA Rental Market

Moishe Alexander’s Review

Highlights

Moishe Alexander says the average vacancy rate in Regina’s rental apartments was 0.5 per cent in October 2008, down from the 1.7 per cent in October 2007. Regina tied with Vancouver and Victoria for the second lowest vacancy rate in Canada. Average rent for all types of suites increased $87 monthly between surveys. One-bedroom suites increased $80 monthly and two-bedroom suites went up $95 monthly. Three-bedroom plus apartments increased $116 monthly. The average vacancy rate for Regina will increase to 1.2 per cent in 2009 as in-migration slows because of a slower increase in employment and rising rents.

NATIONAL VACANCY RATE DECREASED IN OCTOBER 2008

Moishe Alexander says The average rental apartment vacancy rate in Canada’s 34 major centres decreased to 2.2 per cent in October 2008 from 2.6 per cent in October 2007. The centres with the highest vacancy rates in 2008 were Windsor (14.6 per cent), St.  Catharines-Niagara (4.3 per cent), and Oshawa (4.2 per cent). On the other hand, the major urban centres with the lowest vacancy rates were Kelowna (0.3 per cent), Victoria (0.5 per cent), Vancouver (0.5 per cent), and Regina (0.5 per cent). Demand for rental housing in Canada increased due to high migration levels, youth employment growth, and the large gap between the cost of homeownership and renting. Rental construction and competition from the condominium market were not enough to offset growing rental demand. The highest average monthly rents for two-bedroom apartments in new and existing structures were in Calgary ($1,148), Vancouver ($1,123), Toronto ($1,095), and Edmonton ($1,034), followed by Ottawa ($995), Kelowna ($967), and Victoria ($965). The lowest average monthly rents for two-bedroom apartments in new and existing structures were in Trois-Rivières ($505), Saguenay ($518), and Sherbrooke ($543). Year-over-year comparison of rents in new and existing structures can be slightly misleading because rents in newly-built structures tend to be higher than in existing buildings. However, by excluding new structures, we can get a better indication of actual rent increases paid by most tenants. The average rent for two bedroom apartments in existing structures increased in all major centres. The largest rent increases in existing structures were recorded in Saskatoon (20.3 per cent), Regina (13.5 per cent), Edmonton (9.2 per cent), and Kelowna (8.4 per cent).  Overall, the average rent for twobedroom apartments in existing structures across Canada’s 34 major centres increased by 2.9 per cent between October 2007 and October 2008.
CMHC’s October 2008 Rental

Moishe Alexander says Market Survey also covers condominium apartments offered for rent in Calgary, Edmonton, Montréal, Ottawa, Québec, Regina, Saskatoon, Toronto, Vancouver, and Victoria. In 2008, vacancy rates for rental condominium apartments were below one per cent in four of the 10 centres surveyed. Rental condominium vacancy rates were the lowest in Regina, Toronto, Ottawa, and Vancouver. However, Calgary and Edmonton registered the highest vacancy rates for condominium apartments at 4.0 per cent and 3.4 per cent in 2008, respectively.  The survey showed that vacancy rates for rental condominium apartments in 2008 were lower than vacancy rates in the conventional rental market in Ottawa, Regina, Saskatoon, and Toronto. The highest average monthly rents for two bedroom condominium apartments were in Toronto ($1,625), Vancouver ($1,507), and Calgary ($1,293). All surveyed centres posted average monthly rents for two-bedroom condominium apartments that were higher than average monthly rents for two-bedroom private apartments in the conventional rental market in 2008.

REGINA RENTAL MARKET SURVEY

Regina average vacancy 0.5 percentage points

Moishe Alexander says Canada Mortgage and Housing Corporation (CMHC) conducted a rental market survey in October 2008 and found the average vacancy rate in Regina’s rental apartments was 0.5 per cent, down 1.2 percentage points from 1.7 per cent in the October 2007 survey. In comparison to other Census Metropolitan Areas, Regina tied with Vancouver and Victoria for the second lowest vacancy rate in Canada. The survey found that no more than 16 vacant suites existed in any rental survey zone. As a whole, the city and surrounding areas had 52 vacant suites in the survey universe at the time the rental market survey took place.

The decline in the average vacancy rate is attributable to increased inmigration stemming from positive job growth. The rising gap between the cost of home ownership and renting through 2007 and the early part of 2008 also kept demand strong for rental accommodation. Most survey zones recorded a decline in the vacancy rate with only the East and Northeast zones experiencing a slight increase in the rate. All survey zones recorded an average vacancy rate less than one per cent. The Central zone recorded a decline of 2.8 percentage points in the average vacancy rate, the largest decline seen in the city comparing the October 2007 results to the 2008 survey. The East and West zones tied for the highest vacancy rate of 0.8 per cent, though this represents less than 10 vacant suites in each of these zones.  The average vacancy rate is up slightly in the East zone and down 1.5 percentage points in the West. Regina South (Wascana and University) recorded an average rate of 0.1 per cent, the lowest average vacancy rate in the city. The survey found one vacant suite in a survey universe of over 1,000 suites. As the name suggests, projects in this zone benefit from the demand created by students attending the university and Saskatchewan Institute of Applied Science and Technology (SIAST). Employees of these two institutions also contribute to rental demand.

Among suite types, the October 2008 survey found that vacancy rates ranged from 0.3 per cent in one-bedroom suites and 1.2 per cent in bachelor and three-bedroom suites. The average vacancy rate is traditionally higher in bachelor suites, as they are less in demand due to their smaller size. One reason for the higher average vacancy for threebedroom suites may be that rent has increased to the point that some rental households have moved to ownership. Notwithstanding the increase in the average vacancy rate, vacant suites are still scarce for these three bedroom suite types.  The survey report features information on the availability of suites within a rental market. A rental unit is available if the unit is vacant, or the existing tenant has given or received official notice to move and a new tenant has not signed a lease. As the definition of availability includes vacant units, the availability rate will always be equal to or greater than the vacancy rate.  Results of the survey indicate that the availability rate was 1.2 per cent, 1.3 percentage points lower than the average availability rate reported in October 2007.

Average rents increase $87 monthly

Moishe Alexander says Average rent for all types of suites increased $87 monthly between survey periods. One-bedroom suites increased $80 resulting in average rent of $634 monthly. Two-bedroom suites escalated $95 to arrive at a monthly average rent of $756.  Three-bedroom plus apartments increased $116 monthly resulting in average monthly rent of $908. The higher than average increase in rent for three-bedroom plus suite types may have contributed to the increase in vacancy. Turning to individual zone results for all types of suites, the largest increase in nominal rent of $137 monthly occurred in East survey zone projects. This zone contains the smallest number of suites in the survey universe. Moreover, it features the largest number of three-bedroom suites, a rare housing form considered desirable by renters due to the size of these suites. These two factors have led to an increase in average rent and resulted in this zone recording the highest average rent for all types of suites.
Regina’s Northwest zone saw the highest average rent for onebedroom apartments at $749 monthly. Projects tend to be newer in this zone and command higher rents. Central Regina recorded the lowest average rent at $587.

Buildings in this zone tend to be older and the suites smaller than in other zones. Census data confirms that household income is the lowest in the city. These suites would appeal to one-person renter households suggesting that household income would be even lower than the average. This limits the potential for higher rental rates.

CMHC’s measure of estimating the growth in rents for a fixed sample of structures is based on structures common to the survey sample for both the 2007 and 2008 surveys.  The measure aims at better understanding rent changes in existing structures by excluding from the calculation the rents of newly built apartment buildings. The methodology section at the end of this report provides detailed information on this measure. For the Regina CMA, the year-over-year gain in average rent from the fixed sample is 13.8 per cent for all types of apartments in all zones. Both onebedroom suites and two-bedroom apartments experienced a 13.5 per cent gain.

Private rental market supply declines

Moishe Alexander says The attraction of homeownership relative to renting in recent years as well as other important factors has had the effect of reducing the size of Regina rental market. According to Census data, rental units declined as a proportion of total dwellings between 2001 and 2006. While the number of private dwellings increased by 4.7 per cent, the number of rental dwellings declined by 1.4 per cent. CMHC’s annual Rental Market Survey shows that the Regina privately initiated rental universe declined by 220 units between 2007 and 2008 because of rental unit conversion to condominiums, closure for renovations or demolition. Furthermore, there have been no additions to the private rental stock in the form of housing starts over the last year.

Rental Affordability Indicator

Moishe Alexander says According to CMHC’s rental affordability indicator, affordability in Regina’s rental market declined this year. The cost of renting a median priced two-bedroom apartment climbed 17 per cent in 2008, while the median income of renter households grew at 5.4 per cent.  The rental affordability indicator in Regina stands at 93 for 2008, the lowest level of affordability on record.

RENTAL MARKET OUTLOOK

Average vacancy rate to rise in 2009

Moishe Alexander says The average vacancy rate for Regina will increase to 1.2 per cent in 2009 as in-migration slows because of a slower increase in employment and rising rents. Renters are doubling up in order to compensate for rising rents thus contributing to the increase in vacancy. In addition, newer, investor-owned condominiums are drawing off demand from existing rental projects Furthermore, Regina’s resale market is experiencing an increase in supply and price increases have slowed. This situation should persist until late 2009 and will lead to more rental households moving to homeownership as the difference in cost between owning and renting slows its rate of increase. Average rents for two bedroom suites in the city will increase to $855 monthly in 2009 due to low vacancies. In addition, rents will increase to compensate for operating and maintenance cost increases experienced in previous years.

CONDOMINIUM AND OTHER SECONDARY RENTAL UNITS – SURVEY RESULTS

Moishe Alexander says Regina’s version of CMHC’s October Rental Market Survey, which covers private row and apartment structures with three or more units, now includes information on rental condominium apartments as well as other types of rental units in the secondary rental market. The additional information should help to provide a more complete overview of all rental markets in the Regina CMA. The methodology section at the end of this report provides more information on this Secondary Rental Market Survey.

Vacancy rate of rental condominium apartments similar to purpose built rental

Moishe Alexander says Table 4.3.1 provides information on the size of the condominium rental apartment market in Regina. Of the 2,590 condominium units sampled, 303 or 11.7 per cent were rental.  The average vacancy rate of 0.3 per cent in Regina’s rental condominium apartments was similar to the vacancy rate of 0.5 per cent for purpose – built rental. At this time, the size of the rental condominium apartment universe does not allow CMHC to determine the average rental rates for such units. The survey found 8,622 households in other secondary rental units of various forms including single and semi-detached, row and other accessory suites. Average rent for all of these types was $764. Average rent for row and semi-detached units was $768. Average rent for single-detached units was $779.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64431/64431_2008_A01.pdf

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Moishe Alexander’s review of the Ottawa Rental Market and CMHC Outlook Report Fall 2008

February 23, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting the Ottawa Rental Market

Moishe Alexander’s Review

Highlights

Moishe Alexander says Ottawa’s vacancy rate for apartment units fell to 1.4 per cent, the lowest level since 2001. Robust rental demand pushed up average rents faster than the rate of inflation. Increased immigration, along with slower rental construction, will lead to further tightening of the rental market in 2009.

Rental Market Survey Vacancy Results

Moishe Alexander says Rental market data released by CMHC’s latest survey confirmed that the October vacancy rate in the Ottawa Census Metropolitan Area (CMA) experienced tightening during 2008. The proportion of privately initiated apartments vacant in structures with three or more units declined to 1.4 per cent in this year, down from 2.3 per cent in 2007.  The recent level of rental market activity in Ottawa has been mostly driven by strong demand growth.  Rental demand during 2008 was sustained by a stable economy with factors such as strong young adult employment growth, rising costs of homeownership and high migration levels being particularly influential.

Factors Supporting Rental Demand

Higher Homeownership Costs

Moishe Alexander says Ottawa’s economic fundamentals are very strong. In 2008, the labour market strength was supported by a solid trend in job creation and, as a result, Ottawa’s workforce enjoys one of the highest average incomes among Canada’s major cities. However, although strong fulltime employment supports a high level of homeownership demand, record high prices and growing economic uncertainty dampen demand for ownership housing. As a result, some of Ottawa’s potential homeowners have decided to stay in their rented units and postpone their purchase intentions.

Strong Young Adult Employment

Moishe Alexander says Among the various demographic groups affecting the rental market, the young population between the ages of 18 to 24 years old has traditionally been a strong source of demand, since they usually lack the financial means to secure a mortgage.  Consequently, their success in the labour market has a crucial influence on their propensity to move out of the parental home and into the rental market.

Younger adults reached a 20-year record high level of full-time jobs, increasing by 3.8 per cent from January to September, when compared to last year. Therefore, rental demand among this age cohort has remained strong.

Increasing International Migration

Moishe Alexander says International migration flows in Ottawa have been growing at historically high rates, offsetting the weaker inter- and intra-provincial trends in recent years. During the intercensal period of 2001 to 2006, the Capital City received an all-time high annual average in-flow of six thousand immigrants. It is important to note that from arrival it takes an immigrant household between 5 to 7 years to purchase a home which implies greater rental demand.  Interestingly, Ottawa’s growing recent immigrant population was not only younger than the Canadian-born population, but was also on average more educated than their previous immigrant counterparts. Such qualities have allowed recent immigrants to perform well in the labour market, encouraging them to stay in the Capital City. This provided a boost to rental demand during 2008.

Sources of Rental Supply

Slow Rental Construction

Moishe Alexander says On the supply side, the purposebuilt rental construction trend has eased since the peak reached in 2002. The new supply of purposebuilt rental units during the first ten months of 2008 exceeded the average for the past five years only mildly, with just 142 new units built.  At the same time, apartment completions in the 12 months ending in June 2008 were up by only 11 units compared to the same period last year. Indeed, the rental apartment universe has remained virtually unchanged since 2004, which contributed to lower the vacancy rate.

Increase in Condominium Apartment Rentals

Moishe Alexander says Rental market activity in the Ottawa CMA purposed built market is increasingly competing with the supply of condominium apartments rented out by investors. Compared to last year, an additional 313 condominium apartment units were offered for rent in 2008, equivalent to an increase of 8.4 per cent. As a result, the supply of rental units within this segment has reached over 19 per cent of the growing condominium apartment universe in 2008. The total number of condominium apartments rented out comprised 6.7 per cent of the purpose-built apartment rental market supply.

Fewer Secondary Rental Market Units

Moishe Alexander says In 2008 the estimated number of households in the Secondary Rental Market declined by 2.8 per cent, with 35,433 households renting dwellings not covered by CMHC’s Rental Market Survey.1 This total number of housesholds comprises 35% of persons renting in Ottawa.The only property type that gained popularity among renters was single-detached homes, up almost 24 per cent from 2007. Although other Secondary Rental dwellings such as semi-detached, rows, and duplexes still represent 64 per cent of the market, they attracted almost 9 per cent fewer households than last year.

Apartment Rental Market

Vacancy Rate Falls to 1.4 Per Cent

Moishe Alexander says As a result of increasing demand for rental dwellings and slow rental construction, the Rental Market in Ottawa CMA experienced tightening, with widespread reductions in the vacancy rate across all apartment sizes. As well, all rental market zones experienced lower vacancy rates than last year, with New Edinburg/Manor Park/Overbrook and Westboro South/Hampton Pk/ Britannia registering the lowest in Ottawa, both with 0.7 per cent.

Rent Increases Faster than Inflation

Moishe Alexander says The fixed sample average rent in the Ottawa CMA, which effectively compares rent for apartment units surveyed both in 2007 and in 2008, increased by a solid 3.6 per cent. This increase was widespread across all bedroom types.

High Growth in Rent for 3-Bedroom Apartment Units

Moishe Alexander says A significant acceleration in rent increases was experienced by the less common, more expensive three bedroom apartment units, which grew by four per cent from last year.  Such a jump in average rents reduces the cost gap between three bedroom apartments and homeownership.

One reason behind this trend is the growing demand from households seeking a more comfortable lifestyle comparable to that of the less affordable single-family home. Among these households, we find immigrants who tend to have larger families and are more likely to live with their extended family than Canadian born households, thus requiring bigger accommodations.  The vacancy rate for this segment dropped to 1.8 per cent, down from 2.8 per cent in 2007.

Two Bedroom Apartment Rent Exceeds Inflation

Moishe Alexander says Households looking to rent a typical two-bedroom apartment during 2008 faced less choice and higher average rents than a year earlier. The vacancy rate for this apartment type tightened from 2.3 per cent in 2007 down to 1.5 per cent this year, driving the average rent up 3.7 per cent from a year ago.

Popularity of these type of apartments is driven by the fact that over 40 per cent of them are located in popular areas such as Altavista/Hunt Club, Downtown, Westboro/Hampton/ Brittania and Glebe/Old Ottawa South.

Rental Demand Stronger in Regions Close to the Core

Although most regions have been tightening steadily since the 2004 peak, the trendier and more centric regions of Sandy Hill/Lowertown, Glebe/Old Ottawa South, and New Edinburg/Manor Park/Overbrook were among the areas with stronger rental activity in 2008. These rental zones experienced a combination of lower than average vacancy and rent increases above the city average.  Interestingly, the average rent in the area of Gloucester/Cumberland remained relatively flat, even though it experienced one of the most significant drops in the vacancy rate (from 2.6 to 1.1 per cent) and had the second lowest number of units available for rent. In contrast, following previous years’ trend, the less popular area of Vanier offered the cheapest average rent and the highest rate of vacancy.

Lower Vacancy Among Newer and Bigger Structures

Moishe Alexander says Even though vacancy rates declined across all bedroom types and regions, significantly tighter conditions were experienced in trendier and more attractive segments of Ottawa’s Rental Market. Apartment units in newer structures built after 1975 were particularly popular among renters, especially those built after the turn of the century. This type of apartment saw their vacancy rate drop sharply from 2.5 per cent to 1.2 per cent in 2008 and their average rents increase by 5.7 per cent from last year.

Similarly, bigger structures were particularly attractive among households seeking better services and amenities. This was especially true for rental buildings with 100 to 199 units, which saw their vacancy rates cut significantly from last year to just 1 per cent. Thus, monthly rents increased by 4.7 per cent from last year.

Townhome Rental Market

Vacancy Contracts to 2.2 Per Cent

Moishe Alexander says Town home rental activity during 2008 gained intensity as some households seeking single-family home-like lifestyles began to move away from growing resale prices. As a result, the vacancy rate for row house rental units declined to 2.2 per cent in October 2008, down from 2.9 a year earlier.

Average Rent Posts Moderate Increase

Moishe Alexander says Although the average monthly rent for this type of dwelling stayed significantly above that for apartment units, the growth in row house average rents remained below the rate of inflation, at 1.5 per cent. Average rents for row house units tend to be less responsive than apartments to tightening conditions due to their typically dispersed location in suburban areas away from the more expensive Downtown core.

Suburban Regions Tightened the Most

Moishe Alexander says The region of Nepean/Kanata, which currently offers 49 per cent of the total row house rental universe in the Ottawa CMA, experienced substantially tighter rental conditions in 2008.  As some households seek suburban lifestyles in this increasingly popular region, stronger demand cut the number of vacant units almost in half compared to last year, driving the vacancy rate down to 1.9 per cent from 3.2 per cent in 2007 and 5.1 per cent in 2006.

However, the growth in average rent in Nepean/Kanata increased only mildly by 1.8 per cent, and was eclipsed by the jumps seen in other regions closer to the core. This was particularly true for Glebe/Old Ottawa South and Carlington/Iris, which saw growth rates in average rents of 3.4 per cent and 4.2 per cent from last year, respectively.

Condominium Apartment Rental Market

Increasing Popularity of Condominium Apartment Rentals

Moishe Alexander says Despite the increase in condominium apartment rentals, the vacancy rate for this segment remained at 0.5 per cent, steady from last year. At the same time, the average rent stood at $1,093 per month, equivalent to a 22 per cent premium over purpose-built rental apartment units. Such strong demand within the fastest growing segment in Ottawa is being fuelled by its growing popularity among young professionals and empty-nesters who value highquality building services and proximity to the core and its amenities. Not surprisingly, the vacancy rate for rented condominium apartments in buildings with 150 units or more was the lowest, at just 0.2 per cent.

Condominium Apartments Supply Differs by Regions

Moishe Alexander says Pressure for purpose-built rental accommodation in the Downtown core eased considerably since last year due to a steep rise in condominium apartment supply. The purpose-built apartment vacancy rate reached 1.6 per cent in the Downtown core, up from 0.2 per cent in 2007. The inner suburbs experienced tightening in recent years, with its vacancy rate at 0.4 per cent this year, down from 1 per cent in 2007. Such tightening was mostly due to stronger demand pressures arising from the relatively more affordable rents. The popularity of condominium apartment rental remains strong in 2008 in this region, despite the fact that renters faced on average a 20 per cent premium in rent for a two-bedroom condominium apartment, over regular two bedroom rental apartments.

In contrast, the outer suburbs proved to be the preferred area for growth in condominium apartment rentals.  Although these regions saw the fastest yearly supply growth of 14.4 per cent, strong demand resulted in the lowest vacancy rate of 0.1 per cent, down from the already low 0.2 per cent. A relatively lower monthly rent in exchange for suburban lifestyles was an influential factor among renters, who faced an average rent of $940 for a two bedroom condominium apartment or 1 per cent above that of purpose-built rental units.

Affordability Indicator

Moishe Alexander says The rental affordability indicator is a gauge of how affordable a rental market is for those households which rent within that market. A generally accepted rule of thumb for affordability is that a household should spend less than 30 per cent of its gross income on housing. The rental affordability indicator examines a three-year moving average of median income of renter households and compares it to the median rent for a two-bedroom apartment in the centre in which they live. In general, as the indicator increases, the market becomes more affordable. This indicator is further explained in the Methodology section of this report.

According to CMHC’s rental affordability indicator, affordability in Ottawa’srental market improved this year. The indicator has been on an increasing trend since 2005 when it was at a low of 95. This year the median income of renter households grew by 6 per cent, while the median two-bedroom apartment rent jumped by just 4.4 per cent.  As a result, the rental affordability indicator in Ottawa stands at 98 for 2008, up from 97 in 2007.

2009 Rental Market Outlook

Moishe Alexander says A combination of strong rental demand with slow supply of purposed-built apartments will prevail next year, pushing vacancy rates down further to 1.0 per cent.  As well, record-high priced homes and economic uncertainty will deter some renters from jumping into the homeownership market.

Ottawa’s two bedroom apartment rents are expected to grow by 3 per cent in 2009. This increase will be below this year’s growth of 3.7 per cent because there will be lower turnover among tenants. The Residential Tenancies Act allows rent increases over the provincial guideline for apartments that become vacant.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64423/64423_2008_A01.pdf

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Moishe Alexander’s review of the Ottawa Housing Market and CMHC Outlook Report Fall 2008

February 23, 2009 — Moishe Alexander’s review on how the current world economy and Canadian economic turndown is affecting Ottawa Housing Market

Moishe Alexander’s Review:

New Home Market

New Construction Set to Slow by 5.5 Per Cent

Ottawa - Credit Abdullahh, Flickr Creative Commons

Moishe Alexander says the new home market is well set to finish the year up by 5.3 per cent from 2007, with a total of 6,850 new starts. This healthy number of starts constitutes the third highest annual record in the past 20 years. Even as the fourth quarter activity slows down, 2008 will end on a strong note. As Ottawa’s economy reacts to the current slowdown, it will prove difficult to maintain such record levels of new construction. Much like in the resale market, the new housing market faced recently a turning point toward slower growth and 6,000 new properties are expected to be built in 2009, down 12 per cent from 2008. The demographic trends in the next ten years are pointing towards slower housing demand numbers, which will run at an average of 5,300 new starts per year. New construction in the last years has been running above household formation as a result of replenishment of the existing stock.

Single-Detached Dwellings Trending Lower

Moishe Alexander says while still strong, the single-detached segment went from representing almost 64 per cent of total starts in 1999 to accounting for just over 45 per cent in 2007. Converging to a projected long term starts shares trend of 40 per cent for single-detached and 60 per cent for other type of dwellings, they are expected to close 2008 with 2,920 new properties built, down only 1.8 per cent from last year. Single-detached starts will likely finish 2009 on a weaker note with 2,350 new units. The growth in price for a new single family home in 2009 will slow to reach $417,500 or a 1.2 per cent increase.

Construction Flourishing in the Outskirts

Moishe Alexander says the top three urban neighborhoods where new construction has year-to date been particularly active are Nepean, Cumberland, and Kanata, where town home construction represented over 40 per cent of the total of new units and single-detached starts covered another 40 per cent.  Of the total new single-detached dwellings built in the Ottawa CMA over 85 per cent broke ground outside the Greenbelt area.

As the Queen City’s housing market grows, new construction of single family homes and town homes will flourish largely in newer areas outside of the Greenbelt. The rapidly increasing numbers of settled immigrants prefer the more affordable dwellings located in the outskirts of the City, even if that means longer commuting times.

New town home construction will add 2,200 new properties to the new home market, the third highest level in 30 years. there will be a decline in new town home construction in 2009 to 2,050 units. Nonetheless, this type of dwelling will lead the growth in new construction in our Nation’s Capital City.

High-Density Construction Will Be Favoured

Moishe Alexander says both economic and demographic trends have been supporting the growing popularity of apartments in Ottawa. On the one hand, the higher price of land at the City’s Core will sustain greater intensification apartment building projects. On the other hand, the expanding pool of young professionals and retiring baby-boomers favours the convenience offered by owning or renting a condominium apartment. Responding to these factors, this year will close with higher levels of condominium construction located at or close to the Downtown Core.

The outlook for new construction of apartments looks very promising. By the end of 2008, new apartment starts will reach the second highest level since 1992 with 1,500 new units built. Looking forward into 2009, new apartment construction will close with 1,400 new dwellings.

Rental Market

Slowdown in Vacancy Rate in 2009

Moishe Alexander says although there is a high demand for Rental Apartment units not only by young adults and financially weaker households, but also by newly arrived immigrants, new rental construction has accounted for less than 3 per cent of the total construction in the last five years.
As Ottawa receives on average around 6,000 new immigrants every year, strong demand for more rental units combined with a slowdown in inventory build-up will lead to a tighter Rental Market. It should be noted that condominium apartments do represent a source of rental supply as investors lease up their units. CMHC’s condo rental survey revealed almost 20 per cent of the almost 20,000 condominium apartment’s universe was rented out in 2007. In addition, the Secondary Rental Market survey conducted last year revealed a significant 4 per cent of the total population of Ottawa renting a dwelling as a secondary household.

Nevertheless, in the next years Ottawa’s Rental Market will be facing additional demand. Home price gains will deter first time home buyers from jumping into the homeownership market, pushing the vacancy rate further down to 1.9 per cent in 2008 and to 1.6 per cent for 2009. Even if there was a higher amount of new rental construction in the near future, it would take it a couple of years to enter the Rental Market.

The average rent for a two bedroom apartment will sit at $980 per month in 2008, up 2 per cent from last year, and will finally reach the $1,000 mark in 2009. Nonetheless, rental affordability has remained healthy and improving since 2006, supporting future rental demand.

Resale Market

Resale Market Trending Towards Balance

Moishe Alexander says after a slow first quarter, impressive resale activity this year in the Ottawa CMA offers further evidence of the local economy’s remarkable resilience to the wider economic uncertainty.  Recent activity is nonetheless leading Ottawa’s housing market towards slower, calmer waters in what constitutes a clear shift from recent growth trends to more sustainable levels.
The total number of resale transactions will retreat by 5 per cent in 2008 to finish with 14,000 transactions.  Such performance is still healthy by historical standards representing the second highest number of sales on record and exceeding by 4.8 per cent the average annual sales levels achieved since the turn of the century.

As Ottawa’s resale market adjusts to the current economic slowdown, the number of transactions in 2009 is anticipated to step back yet again but by a milder 4 per cent to a total of 13,400, thus gradually stabilizing sales activity along a more sustainable long term trend.
Market Trending Towards Balanced Territory

Moishe Alexander says the supply side of the Resale Market, new Listings, rebounded strongly during the second quarter of 2008 and is expected to close the year at a 4 per cent year-over-year increase.  Although a robust increase, resale volume will increase at a healthier pace this year; therefore, sustaining the existing home market in sellers’ territory.

Looking forward into 2009, it is anticipated that the Capital City’s resale market will trend towards a Balanced Territory. With the slight softening of demand and new listings remaining at a healthy level, the Sales to New Listings ratio will fall below the 55 per cent mark. Consequently, resale market conditions will support price increases at approximately the inflation rate.

Average Price Growth Rising Moderately

Moishe Alexander says consistent with a slower progression of average home prices, the average MLS price for residential properties in Ottawa will close 2008 at $288,500, or 5.7 per cent higher than last year. While the Capital City’s housing market adjusts further to the slowing economy, the average resale price will grow by a more moderate 3.6 per cent, reaching almost the $300,000 mark.

The Downtown Core Along with the Outskirts Remain Popular

Moishe Alexander says amid the uncertain prospects of a slower economy, the Core remains strong, complemented by healthy and fast-developing neighborhoods in the Queen City’s outskirts. This trend will continue as the rapidly retiring baby-boomers and young professional’s preferences are better by the convenience of living within closer proximity to the Core.  Accordingly, the price for existing homes in the Downtown Core will increase by over 9 per cent in 2008.  Notwithstanding the widespread year-to-date price gains observed, the increasingly popular neighborhoods of Orleans and Barrhaven have stood out in 2008.  These regions achieved a better position not only by appreciating faster than the average price wise but also in sales as well. Looking into next year’s trends, Ottawa’s outskirts will remain strong as these areas are newer and less expensive than the average in the Capital of Canada.

Economic Overview

Strong Public Sector Sustaining Ottawa’s Economy

Moishe Alexander says Ottawa’s employment growth is expected to finish 2008 on a strong note, increasing by 2.3 per cent over 2007, with an average of 498 thousand people employed. The Capital City’s economy will see a more modest pace of growth in labour market performance of 0.8 per cent, reaching an average of just over 500 thousand people employed in 2009.  While the Canadian economy decelerates, the Queen City has defied both national and provincial trends.  This is mostly due to a large and expanding Public Administration sector, which has more than compensated for the losses in the Manufacturing, Construction and Transportation sectors.

The Service sector, which constitutes almost 50 per cent of total employment, will grow by 4 per cent in 2008. Next year it is anticipated that the rate of growth of this sector will moderate for the whole province, as well as for Ottawa, as a result of a moderation in consumer spending.

Average Weekly Earnings Supporting Housing Demand

Moishe Alexander says the labour force growth in Ottawa is expected to slow down from a fast rate of 2.1 per cent in 2008 to a more sustainable 1 per cent growth in 2009. As the effects of the decelerating economy start to be felt next year, employment opportunities will grow at a slower rate than that of people looking for a job. Consequently, unemployment rate will stay tight increasing marginally to 5.1 per cent in 2009. Average weekly earnings will close this year 5 per cent higher than in 2007, while 2009 will see a more conventional, yet still remarkable, 3 per cent growth in average labour income. This high level of earnings is the backbone of healthy economic activity that is supporting our City’s housing market.

Migration Increasing into Ottawa-Gatineau

Moishe Alexander says with a population of almost 900,000 individuals in Ottawa and more than quarter million in Gatineau, the region posted an increase in migration last year with over 8,500 more individuals.  As Canada’s High Tech Capital, Ottawa’s workforce enjoys one of the highest incomes in Canada. This factor, along with its healthy level of employment, will help support increased migration into 2009.

Mortgage Rates

Moishe Alexander says Mortgage rates are expected to be relatively stable throughout the last quarter of this year, remaining within 25-50 basis points of their current levels. Posted mortgage rates will decrease slightly in the first half of 2009 as the cost of credit to financial institutions eases. Rising bond yields, however, will nudge mortgage rates marginally higher in the latter half 2009. For the last quarter of 2008 and in 2009, the one year posted mortgage rate will be in the 6.00-6.75 per cent range, while three and five year posted mortgage rates are forecast to be in the 6.50-7.25 per cent range.

You can find the entire report in PDF format through the following link:
http://www.cmhc-schl.gc.ca/odpub/esub/64311/64311_2008_B02.pdf