Why Is Ottawa so Expensive?

Over the last few years, the costs in the nation’s capital have often led to questions such as, “Why is Ottawa so expensive?” Well, conditions are starting to improve modestly now that interest rates are coming down.

The Bank of Canada (BoC) is beginning to cut interest rates, meaning that rates across the Canadian marketplace, including mortgage costs, will also ease in the coming months or years. This is good news for first-time homebuyers looking to finally reach homeownership after two years of rising mortgage rates and sky-high home prices.

In the Ottawa real estate market, households are starting to feel the effects of lower interest rates. According to CTV News, the average income needed to buy a home in Ottawa was $129,650 in July, down from $131,210 in June.

Of course, savings from rate cuts were offset by a tepid increase in home prices. New data from the Ottawa Real Estate Board (OREB) showed that the Home Price Index (HPI) composite benchmark price was $648,900 in July 2024, up 0.1 percent from the same time a year ago. The HPI for a single-family home was $734,700, while the benchmark price for a townhome was $506,100. The apartment price was $422,800. In the first seven months of 2024, the average price was $681,082, up one percent from July 2023.

While homebuyers might be experiencing some financial relief, renters are not enjoying the same reprieve. New data show that rents for one-bedroom apartments climbed 1.5 percent month-over-month in July to $2,015. Likewise, rents for a two-bedroom unit rose 1.2 percent to $2,506.

So, why is housing in Ottawa so expensive anyway? Additionally, why is rent so expensive in Ottawa? Industry experts, alluding to different data and trends, have presented various opinions over the years explaining why the Ottawa housing market is quite costly.

Why Is Ottawa so Expensive?

Ottawa, the sixth-largest city in Canada and the second-largest in the province, with a population of more than 1.4 million people, maintains many vital industries, such as life sciences and biotechnology, professional services, IT, and public service. Ottawa enjoys one of the highest-educated workforces in the nation.

Put simply, Ottawa is known for its high living standards and stable economic conditions. As a result, the cost of living and high prices for basic goods and services in the nation’s capital continue to be an issue, creating a situation whereby the population asks why is Ottawa so expensive. This is making it harder for low- and middle-income households to live comfortably. Since 2017, the cost of living has rocketed nearly 20 percent, home prices have surged more than 50 percent, utilities have risen 10 percent, and rental costs have spiked 86 percent.

If home prices are within reach, above-trend mortgage rates might also be a factor. They have been high since the central bank launched its inflation-fighting endeavours in the spring of 2022. The five-year conventional fixed-rate mortgage finally fell below six percent in July, though it will be time before this figure eases even more. As a result, many homebuyers struggle to pass the mortgage stress test. Even with the Bank of Canada’s recent cuts, housing affordability remains a concern in Ottawa.

Ultimately, Ottawa is expensive across the board, from groceries to utilities to housing. This has created a wealth gap between low- and high-income residents, leading to financial challenges in obtaining childcare, leisure activities, and food. It is no surprise that Ottawa is the third-most expensive city in Canada after Toronto and Vancouver, according to a study by the Canadian Center for Policy Alternatives.

Conditions might not improve either as more young families are relocating to Ottawa. Over the last six years, the population has increased by approximately seven percent, bolstering demand for housing – both to purchase and to rent. This has created a situation where more households are competing for limited properties. While new housing construction has improved in recent years, supply is below historical averages.

The local real estate association recently found that new listings were 6.3 percent below the five-year average and nearly seven percent below the ten-year average. Additionally, active residential listings were more than two percent below the decade average for this time of the year. Housing stocks may not catch up to demand this year as housing starts are down about 14 percent year-to-date compared to the same time in 2023, according to the Canada Mortgage and Housing Corporation (CMHC).

As previously noted, rents are not showing signs of slowing down. One of the reasons why Ottawa is so expensive is that the apartment market is quite competitive amid tight supply and solid demand. The development of new housing units is not matching with the population growth, exacerbating shortages in the wider Ottawa real estate market.

Until inventories normalize and keep up with demand, families will continue to ponder the question, “Why is housing in Ottawa so expensive?”

Ottawa Versus the Rest of Canada

While all these numbers suggest that Ottawa is expensive in terms of housing and basic living expenses, it is important to note that it is still less expensive than living in the major urban centres of Toronto and Vancouver. However, it can be challenging for people living paycheck to paycheck to manage the rising cost of basic necessities. It is difficult for new home buyers to get on the first step of the homeownership ladder, as many cannot qualify for a mortgage. Mortgage rates are expected to continue falling heading into 2025. For now, the financial situation is sticky and stubborn.

Indeed, Ottawa’s cost of living presents challenges to many families. At the same time, experts are optimistic about the city’s future. They anticipate continued growth in the housing market, which is sensitive to economic changes and highly dependent on interest rates, inventory levels, and policies to address supply constraints. This optimism offers a sense of hope to residents and prospective homebuyers repeatedly asking why is Ottawa so expensive.