Why Does a New Home in Ottawa Cost so Much?
Did you know the average new single family home in Ottawa costs $440,100? Ottawa’s homebuilders build 5,000 to 6,000 new homes per year, and we often get asked “why does a new home cost so much?” That’s why we’ve created this handy infographic which tells the story at a glance.
1. The Supply of Land is Limited and Price of Land is Rising
At present, the cost of serviced land for a 2,000 sq. ft. single home is approximately $115,700.
On average, the price of serviced land outside Ottawa’s Greenbelt is 26% of the total cost of a new single family house. The price of land is at an all-time high in Ottawa today! One of the principle factors behind the price is the City of Ottawa’s intensification policy which promotes homebuilding within the Greenbelt and limits the expansion of the urban boundary. When you restrict supply and demand holds firm, prices will go up.
Many of Ottawa’s smaller and mid-sized homebuilders pay a premium to purchase serviced lots from larger land development and building companies. Unfortunately this practice is rapidly disappearing with intensification. In Ottawa today, there is no additional land available, and the larger land development companies are no longer willing to sell serviced lots. The result is that many of Ottawa’s small- and medium-sized builders have been building forced outside of the city, or have gone out of business, as the supply of land becomes increasingly restricted.
2. Government Fees and Taxes are Growing at an Alarming Rate
Government fees, charges and taxes at the federal, provincial and municipal levels average 23% of the total home price ($98,312).
In Ottawa, anyone who buys a new home outside of the Greenbelt (i.e. Kanata, Barrhaven, Orleans) pays up to 31,000 in development charges to the City of Ottawa. The homebuilder pays this fee prior to building the home, and then includes it in the new home sale price. Development charges cover the cost of additional city infrastructure and services related to the new home. This fee does not cover the utilities (curbs, sidewalks, heat, hydro, streetlights, transit and roads) for the new house – the homebuilder pays for these, and then includes it in the new home sale price.
Other government fees include building permit fees, which average $2,400 for a 2,000 square foot home. Homebuilders also pay provincial land transfer taxes and the HST on all building supplies and labour. These fees and taxes comprise on average 17% of the cost of a new home or $73,000 on a $440,902 home.
3. Construction Costs are One-Third of the Cost of a New Home
The construction costs incurred to build a 2,000 sq. ft. house average $151,000 or 34% of the total cost.
It is interesting to note that the actual construction costs have remained relatively constant over the past 10 years due to advances made in new technology and materials. Construction costs are those of the building materials, equipment and labour required to build the house. One of the great stories is that while labour costs have risen, the homebuilding industry has been able to build homes that are much more energy efficient and design-friendly without increasing construction costs to the homebuyer.
4. Business Operations Comprise 11% of the Cost of a New Home
Most new homebuyers who visit an average of 8-10 model homes before buying, will recognize that there is a substantial cost to builders during the ‘sales and marketing’ phase of any project. On top of these costs, homebuilders incur general and administrative costs needed to operate a business and, perhaps more importantly, allow homebuilders to employ 25,000 Ottawans working in the homebuilding industry.
5. On Average a Homebuilder will earn a 6% Profit on a New Home
On a 2,000 sq. ft. home built outside Ottawa’s Greenbelt, a homebuilder will earn a profit of $26,700.
While this may seem like a lot, it is important to keep in mind that it takes a homebuilder three to five years to build a home from planning and permitting to finish. In most cases that homebuilder has owned the land for five to ten years before the planning process started so spread over time, actual profits could be a fraction of a per cent per year.