Canada’s one stop platform and the #1 National voice to the rental housing industry


Posted in Industry Trends

Ottawa’s rental market is at a challenging moment. It used to be that renting was seen as a stepping stone to homeownership, not the end goal. But in today’s atmosphere of rising interest rates, rising prices that put buying a home out of reach for many, and rising demand that exceeds supply, attitudes toward renting are shifting, particularly among mobile millennials in search of a more flexible lifestyle.

While we’re certainly a long way away from some European cities where lifelong renters make up the vast majority of residents, we are edging closer to acceptance of the idea.

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.

That’s also seen in the plethora of amenities found in today’s new-construction rental buildings — known as purpose-built rentals — giving them the feel of a high-end condo lifestyle without the cost of buying.

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.”

We have a decent supply of new rental units coming into the market, with Pomeroy noting that prior to 2016, less than 10 per cent of our annual new construction in Ottawa was for purpose-built rentals; now it’s closer to 30 per cent.

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.”

This is significant, he says in an interview, because “it means that even though we’re seeing more rental being built in the city, we still have a low vacancy rate … there’s potential for even more construction.”

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.

Coupled with that, the costs to build have increased significantly, both in terms of construction costs and increasing interest rates that inflate financing costs, causing many developers to slow down or delay projects that would add more rental units to the market.

“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.

In the past few years, we’ve seen a marked shift in developers pivoting from building condo towers to building purpose-built rentals, primarily because as it became more of a risk to build condos in a softening market, it became more appealing to build rentals instead, helped by the relaxing of rent controls on new-build rentals that came into effect in late 2018.

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.

Claridge Homes, which has dominated in the condo and purpose-built rental market for several years, also took advantage of the changing market, says chief operating officer Shawn Malhotra. “We’ve always pivoted back and forth between financially what makes more sense between rentals and condos … in the last couple of years with the way the market conditions have been, we pivoted back to purpose-built rental for a lot of our projects.”

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.

Brigil, which is a big player in the purpose-built rental market, is determined to do its part, targeting a goal of building 1,000 to 2,000 units a year, says Jessy Desjardins, who is vice-president of development and conception. “With the rise of costs and interest rates, we looked at the big picture and reassessed things, but we’re going forward with a lot of new projects because there’s a lot of demand.”

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