RENT VERSUS BUY NOW SEEN IN A NEW LIGHT
Steve Pomeroy, a housing analyst who is the senior research fellow for the Centre for Urban Research and Education at Carleton University, polled his 22 graduate students last year, asking them if they thought they would ever be able to buy a house. None did. Then he asked how many would keep renting even if they could afford a home. About one-third said they would.
“That’s a huge cultural shift away from the mantra of (homeownership),” he says.
The 2021 census shows about 36 per cent of Ottawa households are rentals, up from about 34 per cent in 2016. In a press release this spring announcing the start of construction of a 189-unit Gatineau rental project called Mellem, developer Maître Carré calls it “the era of tenants,” putting an emphasis on the living experience for residents.
But all is not rosy in the rental world. Just as pressures are making buying a home more difficult for many, similar pressures are plaguing the rental market, forcing up rental prices, flattening vacancy rates and giving developers pause on the construction of new projects.
“It’s tight,” says Ken Dekker, who is president of the Ottawa Real Estate Board. While the board represents only a portion of the rental market, it is a window into what’s happening overall. Typically, the board has seen two to three months worth of inventory, depending on the season. “Right now, we’re running one month of inventory, which if it was sales that would be an extreme seller’s market.”
But it’s not nearly enough, says real estate investor Christian Szpilfogel of Aliferous Group, who describes himself as a mid-sized landlord and who did a deep dive last year into researching Ottawa’s rental market.
In the past five years, Ottawa has seen about 10,000 new rental units added to the market, with 3,000 of them completed last year alone, says Lukas Jasmin-Tucci, an economist with Canada Mortgage and Housing Corporation (CMHC). “This is the first time in more than 20 years that the share of starts accounted for by purpose-built rental and condominium apartments surpassed that accounted for by single-detached and row houses,” he says in CMHC’s Housing Supply Report. “Together, both types of apartments accounted for more than 50 per cent of housing starts in 2022.”
A perfect storm of factors is fuelling the demand, Szpilfogel says, from increased immigration and internal migration to lifestyle choices that are seeing empty nesters and baby boomers looking to downsize at the same time that millennials who delayed getting into the housing market and then got priced out of it are having to stay in a rental.
“Supply just hasn’t been able to keep up.”
And that has led to a decline in the vacancy rate to 2.1 per cent, CMHC says, returning it to pre-pandemic levels. “It’s been hovering around the one to two per cent mark since 1975,” Szpilfogel says.
“What you see being built out is usually the high-rise buildings by mostly very well-funded developers … where, despite the increase in interest rates, we can still see the appeal,” says Michael Ivanich, who is director of property management for Richcraft Rentals. “But they’ve slowed down.”
All of that forces up rents. “Rental rates in the area have gone up probably around 20 per cent since the beginning of the pandemic and still it’s increasing,” notes Ivanich.
It was “a case of seeing the return on investment increasing for rental versus development for sale,” says Justin Robitaille, who is vice-president of development for Dream Unlimited, the developer behind the expansive Zibi project that straddles the Ottawa River downtown. Zibi has shifted from an initial focus on condos to a current spate of rental buildings, including a second that’s about to open in Gatineau called Aalto II and the first on the Ottawa side, called Common at Zibi, slated for later this fall.
A prime example is Claridge’s Hintonburg project, which launched as a condo building in 2021 before being pulled off the market last September and later reintroduced as a rental tower.
Because the supply can’t meet the demand, “there’s still going to be a shortage of rental housing in Ottawa for the foreseeable future,” says Szpilfogel.
It’s important not to forget about the small mom-and-pop landlords who, according to Szpilfogel’s research, make up 70 to 75 per cent of the share of the market. “They can be a huge part of the solution” because they’re more agile than big developers and they are plentiful. “I think that’s one reason the province put a lot of effort toward secondary dwellings in houses, accessory dwelling units.”
For the foreseeable future, Malhotra expects rentals to be a viable option for builders, especially with interest rates continuing to climb, as they did again on June 7. “We see the wave
Story by: Ottawa Citizen