In his office at the Centretown Citizens Ottawa Corp., Dennis Carr looks over plans for the Beaver Barracks housing project.
Organizations that provide low-income housing may stand to benefit from Ottawa’s slumping housing market, say market experts.
If the recession drags on, property and construction costs will continue to drop, says Steve Pomeroy, senior research fellow at the University of Ottawa Center on Governance. He says this will allow affordable housing organizations – once crowded out by high prices – to benefit from reduced expenses.
Organizations such as the non-profit Centretown Citizens Ottawa Corporation stand to gain from the contracting housing sector, says Catherine Boucher, executive director of the CCOC.
The CCOC provides almost 2,000 people with affordable housing and owns almost 50 properties in the Centretown area.
For over a decade, property prices rose steadily and the city’s housing market boomed. The Canadian Mortgage and Housing Corporation reported the average price for residential properties in Ottawa peaked at $288,500 in fall 2008, an increase of almost 14 per cent from 2005.
In October, the boom ended as a worldwide recession began to take its toll on the housing market, says Rick Snell, president of the Ottawa Real Estate Board.
But, the sudden turnaround isn’t bad news for all.
Soaring property prices had hurt organizations such as the CCOC for years.
“Before the recession, the cost of land and materials escalated at a furious rate, and trades and labour were difficult to find,” says Boucher.
A report released last week by the Ottawa Real Estate Board shows signs of a slumping housing market.
The report found the average price of residential properties, including condos, sold in February was $273,719, a decrease of 2.9 per cent over February 2008.
“If the cost of acquiring buildings declines it might make the whole market affordable in terms of acquisition as we still need a housing program that allows us to do new development,” says Boucher.
Along with declining property prices, organizations such as the CCOC could profit from reduced construction costs.
The CMHC reports housing starts in Ottawa fell by 18 per cent in January year-over-year. In Canada, the CMHC estimates January housing starts were down almost 36 per cent from a year ago.
This frees up all kinds of resources and construction workers, making it cheaper to build.
“That’s an obvious positive for folks like CCOC that are looking around for building opportunities, trades and properties they’ve already gone through,” says Pomeroy.
This could have immediate benefits for the CCOC’s current affordable housing project, Beaver Barracks.
The project – located on the northwest block of Catherine Street and Metcalfe Street – doesn’t have a construction contract yet.
Dennis Carr, the CCOC’s development coordinator for the project, says a contract should be signed by late April to begin the building process, and benefit from reduced construction costs.
Before the recession, construction costs were going up 10 to 15 per cent every year, says Carr. He expects construction prices to be lower than anticipated before the recession.
“We don’t know about material prices, but we do think the labour prices will come down,” says Carr.
The construction industry will have to be more competitive in bidding for projects as it anticipates less work in the future due to the softening housing market, says Carr.
However, the amount both property and construction prices decline will depend on how the recession affects the local real estate market.
If you look to the last recession in the early 1990s, land and construction prices were low, says Carr.
During the last recession, private developers unloaded their properties at bargain prices.
The situation should be similar today, as current projects are no longer profitable for private developers who wasted years planning and lobbying for permits, says Carr.
“They’re sitting there twiddling their thumbs and they’ve got money tied up in land that’s basically just paying interest to the bank and not generating any revenues,” says Pomeroy.
Developers are looking to unload their property as there’s no longer a market for mid- to high-end condos.
However, the demand for affordable housing projects will still be there, says Pomeroy.
“This is beneficial to look to new projects as construction and property prices come down,” says Boucher.