Ottawa’s Condominium Conundrum

By Emmanuel De Guzman, WhichMortgage.ca

Toronto and Vancouver have dominated the conversation when it comes to the Canadian real estate market, and being the two most unaffordable housing markets in the nation,¹ it’s easy to understand why. But housing remains quite affordable in the rest of the country. In a recent report from RBC Economics Research, chief economist Craig Wright declared that “housing affordability is at generally attractive levels in the Ottawa area,” to the cheers of first-time home buyers there.² Every market has its stories, though, and one of these stories in the nation’s capital is that of condominiums.

Condos: Buying the Lifestyle

Condominiums are thought to be for the single young adult who just wants to get out of mom and dad’s house and the retirees who are downsizing in order to eliminate maintenance costs of a large property as the years roll on. But increasingly, condos are being marketed to all people within cities who want the conveniences and amenities of being downtown without the hefty price tag of a single-family detached home. Even young families are looking at condo developments if they’re unable or unwilling to move outside of the downtown core.

The average sale price for a condominium-class property in June was $264,913, a decrease of 2.4 per cent over June 2015, according to the Ottawa Real Estate Board.³ Over the past few years, there have been a lot of condos available in the city. A large number of newly-built units sitting on the market means that the condo market is a bonanza for buyers.

So why aren’t first-time home buyers jumping at the opportunity?

“A few years ago, I’d easily say first-time buyers are looking at condos because that’s what they could afford. With the market going down, they’re questioning that. They’re asking if a condo is really the right thing,” says Matt Richling, a real estate agent in Ottawa. “One of the biggest things that I see is someone buying that lifestyle that they want today and then within a couple of years, they end up selling because lives change. They have a kid or they have a pet or a partner, and that studio unit doesn’t work so well. At the end of the day, it’s still perfect product for a first-time buyer because of how easy it is, but at the exact same time we’re seeing more first-time buyers stretching that and also look at other products, which may be that townhouse style a little bit further out. Ottawa’s small . . . so for a 30 minute drive or a 40 minute drive you’ve got three big suburbs included in that, and people are willing to do that.”

Ottawa: A Closer Look

Ottawa housing starts were down for the fourth straight month, due in part to condominiums, and activity is expected to be down for the rest of this year and into 2017, based on the high inventory of unsold units.⁴ According to the Canadian Mortgage and Housing Corporation, “in terms of high-rise condominium dwellings, apartment starts are expected to decline in 2016, continuing a three year reduction of activity as builders clear unsold inventories . . . Since condominium starts declined in 2014 and 2015 by 37 per cent and 45 per cent, respectively, condominium units under construction have been steadily declining reaching 1,279 units in March 2016. This is the lowest number of condominium units under construction since July 2007. While the population continues to grow in the nation’s capital, it is growing at a more muted pace than condominiums in recent years. We therefore expect to see condominium starts decline slightly in 2017.”⁵

Admittedly, there’s also a bit of a stigma around condominiums, and if people are able to buy freehold homes or willing to travel out to them, then they do. Even when buyers do want condominiums, they quickly realize that not all buildings are created equal, and the amenities, fees, and management quality varies for each building. With the condo supply being curtailed, it’s reasonable to expect that Ottawa’s condo market will tighten up as the year continues. Even though the condo market in Ottawa could be described as being sluggish, agents say that properties that price well and show well are still going to perform strongly over time.

“They’re certainly still moving, and as of this year, they’re moving better than they have over the past two or three years,” Steeves says. He’s not saying that the condo market is out of its slump yet, but “without having a crystal ball or knowing what the future holds, my opinion is that we’re coming out of the worst of it.”

In fact, the real estate markets in Toronto and Vancouver give Ottawa buyers some confidence because they see plenty of room to grow. Unlike the Toronto and Vancouver areas, where even buyers interested in condos are having to make tough decisions when it comes to the sacrifices they’ll have to make in order to get into their homes, Ottawa buyers seem to have the pick of the litter, and it increasingly appears that there’s an opportunity to appeal to a different kind of condo that some people want.

Windmill Development Group has teamed up with Dream Unlimited Corp. to create Zibi, a 37-acre development project to be built on the Chaudière and Albert Islands and the Gatineau waterfront. Jeff Westeinde, founding partner and executive chairman of the Windmill Development Group, wants to cater to people who are much more interested in a full-fledged sustainable community. He told Canadian Geographic that “we want to be the world’s most environmentally and socially sustainable community.”

Built on a former Domtar paper mill site, Zibi is expected to include condo buildings, a boutique hotel, shops, waterfront parks and a network of pedestrian and cycling paths. Zibi follows an ambitious One Planet Action Plan, which is a model based on ten simple principles to make sustainable living easy and affordable for all: zero carbon, zero waste, sustainable transport, sustainable materials, local and sustainable food, sustainable water, land use and wildlife habitats, culture and community, equality and local economy, and health and happiness.

Rodney Wilts is a partner at Windmill Development Group, and has worked on a number of sustainable development projects over the years.

“Our vision of a sustainable city relates not just to environmental sustainability, but also social sustainability — where people can afford to live and raise their family,” Wilts said at a panel discussion at Greener Horizons Ottawa.

The site of the development proposal, however, has come under a lot of controversy because of Algonquin community members who oppose the development and who have challenged the zoning of the area, which was historically indigenous sacred land. Housing a growing population in the heart of a major metropolitan city is a challenge, and Windmill and Dream Unlimited are walking the fine line between preserving the past and meeting the needs of a growing community of people who want more from a condominium than a box in the sky.

Another community in Ottawa that shares some of those same aspirations is Greystone Village, a planned development by eQ Homes and The Regional Group. Situated in Old Ottawa East, Greystone Village has a focus on integrating LEED neighbourhood development initiatives into the community, such as integrated transit stops, energy star homes, and green space.

Another sustainable initiative that received a lot of attention was the Net Zero Energy Ready home released last year by green home and condo builder Minto Homes, which has projects throughout Canada and the United States.

Brad Strachan, senior vice president of Minto Homes, says that a lot of people inquire about environmentally sustainable and energy-efficient options, but few buyers are prepared for that kind of outlay upfront.

“More and more people are seeing it as a priority and something that they want, but when it comes down to it, not being something that they’re willing to spend on,” Strachan says. He’s like to see more government rebates and incentives in order to help shift consumer trends.

“There is a perception that builders don’t wat to do it. And I’d say, builders want to do what people want to buy. So through these initiatives that we’re part of, it really is an [research and development] process, not only for house construction but also from a market perspective: what are people interested in, what do they see value in, what will they pay for?” Strachan says. “We need to curb consumer decisions and help drive that through more affordable, efficient homes.”

Richling says that the Zibi development in particular is getting quite a bit of attention, but it’s not necessarily because of the sustainability angle. There’s talk of the Ottawa Senators moving downtown, the development itself straddles two provinces, it’s in a designated heritage area, the developer has a history of breaking the old when it comes to interesting design, and – the big one – the location can’t be beat.

“I have a hard time thinking right now that someone’s solely purchased on the sustainability side, but it’s definitely going to be that cherry on top, or it’s definitely going to be that extra that helps close the deal and make them feel better about it,” Richling says.

Condo Buying Isn’t Just About City Living

Real estate agent Chris Steeves says that buying a condo isn’t just about city living, and whether or not it’s smart to buy a condo depends on what a buyer’s plans are, what their goals are, what they want to do with their condo. If someone wants to purchase a property for investment purposes, for example, he tends to steer them away from condos because “they just haven’t been performing well and there have been a lot of people who have lost money.” Even if someone wants to purchasing a condo to be their primary residence, if they don’t know what the next few years of their life is going to look like and end up needing to move in a year or two, they could end up in a bad situation because the appreciation value isn’t as strong for condos as it is for other types of housing.

“I wouldn’t necessarily say that they’re bad investments because I’m still seeing increases in that sense,” Richling counters, “but just not the high-yielding like we were seeing back in the day where it’s guaranteed that you could buy the worst property and you’re still making money. You can still do it, it’s just that you have to be picky.”

Richling says that buyers have gotten smarter, and are taking their time to be much more discerning when it comes to the condo itself, as well as to take a longer-term outlook when it comes to their personal situations. In the end, the buying experience is a personal one.

“Here in Ottawa, we don’t have those big ups and downs. Buy based on you,” he advises. “Don’t buy based on the market, don’t buy based on hype; gone are the days where [condos are] a high-yielding income investment. Those days aren’t here anymore. Those days are gone. You need to be buying for not the you today, but the you maybe in four years.”

While condo starts are down, resale activity is expected to grow modestly throughout 2016. “In terms of activity on the condominium side of the market, sales may strengthen slightly over the forecast horizon, as buyers may be attracted by the relative affordability of resale condos compared to newly-built ones. Ample listings and soft demand conditions have also pressured prices down tempting some buyers to take advantage of low mortgage rates and competitive prices,” states the CMHC Housing Market Outlook.

Ottawa is still a growing city, ripe with professionals and immigrants who need a place to live. And whether it’s a sustainable development with different architectural features or a more traditional building, if people want the condo lifestyle, Ottawa residents still have plenty of options to choose from, green or otherwise.