One of the measures of a city's economic success is the dollar value for building permits issued - it indicates how much growth is occurring in the city. Building permit value in Ottawa reached an all-time record of $1.83 billion in 2005, 7.9% higher than in 2004. At the national level, Ottawa-Gatineau ranks sixth among the major Canadian cities in terms of dollar value for building permits.
Building permit value is increasing
In 2005, the total building permit value for the Ottawa-Gatineau census metropolitan area (CMA) was $2.24 billion, a slight decrease of 1% compared with the previous year. This was mainly due to less industrial and institutional development in Gatineau, which translated to lower metropolitan growth averages. To date, 2006 building permit values for the Ottawa-Gatineau CMA are slightly ahead of last year.
The graph below shows the building permit values for the City of Ottawa from 1991 to 2005.
Building permits, Ottawa, 1991-2005
Non-residential construction in Ottawa was responsible for the surge in activity in 2005. In fact, institutional and government construction projects more than tripled, fuelled by projects such as the Canadian War Museum, the new wing of the Royal Ottawa Hospital, major expansions at hospitals and universities, and ongoing renovation at several government buildings. Industrial construction increased by 110% over 2004, while commercial construction dipped by 8.3% and residential activity declined by 23.3%.
Housing starts and rental vacancy rates are declining
Low interest rates, a traditionally tight rental market, strong employment gains and steady population growth have fuelled Ottawa's real estate market over the past several years. Housing starts in Ottawa reached a cyclical peak in 2004, slowed down in 2005, but are 6% ahead of last year's levels as of the end of June.
Ottawa-Gatineau housing starts, 1992-2005
In 2004, Ottawa residential Multi-Listing Sales ( MLS) reached a record high of 13,457 homes sold. In 2005, MLS sales dropped by 1.2% to 13,300 homes sold. However, combined Ottawa-Gatineau metropolitan MLS sales totalled 18,033 in 2005, making this the sixth most active MLS market in Canada. In 2005, the average price of a resale house in Ottawa was $248,358, up just over 4% from 2004.
After four consecutive annual increases, Ottawa's rental vacancy rate decreased to 3.3% in 2005, from a cyclical high of 3.9% in 2004. The decline is attributed to rising home-ownership costs, low rental construction, lower rents in many of the survey zones and, to a lesser degree, strong levels of youth employment leading to quicker departures from parental homes.
Home ownership has become slightly more affordable since 2005. In 2005, including both new and resale units, there were 4,428 affordable homes on the market (27.5% of the overall supply of housing). This is a small improvement over 2004 when 26.8% of homes were affordable.
Housing affordability is improving
However, as the following graph demonstrates, ownership prices have gone up in recent years, both for resale housing and new homes. In 2005, 5,466 houses were built in the City of Ottawa. Of these, 13.4% were affordable to households earning up to $56,800 a year, the 40th income percentile. Generally, affordability improved slightly in 2005 mainly because many new town homes were built.
In the residential resale market, 34.7% of homes sold were priced below $208,000 and were affordable to households at the 40th income percentile.
Ottawa house prices adjusted for inflation
Relatively low mortgage interest rates have meant that many householders could afford to own their own homes. The slight surge in the condominium market in recent years has also created more affordable ownership options. However, in 2005, the principal and interest charged on Ottawa's average condominium exceeded two-bedroom apartment rents, suggesting that condominiums are becoming a less affordable option to Ottawa residents. The average rent for a two-bedroom unit was $920 in 2005.
Housing affordability for tenants remains a problem in the city, where 35% of renters spend more than 30% of their income on housing. The affordable monthly rent for households up to the 30th income percentile in 2005 was $1,108. Fortunately, the picture is improving. Overall, average rents decreased for all types of apartments, except bachelors, in 2005. That same year, the number of renter households with affordability problems decreased a modest 12% from 1996 when 50,000 households paid more than 30% of their income for shelter.
Office vacancy rates are stabilizing
As the following graph demonstrates, Ottawa's market for office space in the central part of the city remained strong due to continued demand, primarily by the federal government. The suburban office rental market has declined since it peaked in 2000. The recent improvement in the technology sector has led to increasing demand for office space and a decline in suburban vacancy rates. By the end of 2005, overall vacancy rates declined 36% as more office space was used in the suburban market.
Ottawa office space vacancy rates
City central vs. suburban area