The rise of rental: Young — and old — driving resurgence of interest in apartment building. http://t.co/we3WBVGqLN via @torontostar
— Susan Pigg (@SusanPigg) January 30, 2015
The above tweet references a timely article written by Susan Pigg of the Toronto Star. It appears as though we are coming full circle. You may recall that the Toronto housing market was in a vicious correction from 1990 – 1996. Those were very bad years with the price of housing falling significantly. Those who bought in 1989 were the most hurt. Prices fell so low that for a period in the late 1990s, it actually cost more to rent than to own. In other words the rent to purchase price ratio was very high. Translation – it was very expensive to rent. This was a significant factor in fueling what has been probably the longest real estate boom in Canadian (certainly Toronto) history.
We have now reached 2015. The ratio of rent to purchase price is now very low. Translation – it’s getting very very expensive to buy. Hence, the demand for Toronto rentals is high. The question has now become:
Is it worth buying Toronto real estate at current price levels? It is now longer assumed that residential real estate is a good investment. Renting residential property can be the right choice for many.
The headlines include:
Is Alberta’s housing market going to crash? #AskTheGlobe https://t.co/yANV7isDsz
— Landlord Relief (@LandlordRelief) January 31, 2015
and
Canadians set to jump on home buyer bandwagon amid lower rates http://t.co/vB7HxZiqqM
— Landlord Relief (@LandlordRelief) January 31, 2015
Clearly more and more people are recognizing the benefits of renting.
The article by Susan Pigg includes:
Rental is back on the radar because rising rents and low interest rates have combined to drive down capitalization rates dramatically, from about 7.3 per cent in the third quarter of 2003 to 4.2 per cent in the same period of 2014, says Nick Yanovski, managing director of capital markets for commercial brokerage Cushman & Wakefield Canada.
That means rental construction – which had virtually died in the wake of rent controls — is actually profitable again. It’s also now seen as a low-risk, long-term hold with the GTA’s population, and land prices, continuing to rise and the vacancy rate at just 1.6 per cent – even less in the downtown core, says Yanovski.
It’s not just that more first-time buyers are finding themselves priced out of ownership. Many don’t want the responsibility. They want to be downtown, free to seize opportunities in other cities or plough all their spare cash into getting their own companies off the ground.
Strangely enough, aging baby boomers are increasingly in a similar boat.
“Many are living in their retirement savings account,” says Minto’s Rogers.
Baby boomers are likely to start cashing out on their houses in the coming years to free up money for retirement, travel and to help out their kids, he adds. They like the idea of carefree living in professionally run rental buildings, with the ability to move with two months’ notice and no real estate fees if they decide to be closer to the grandkids.
“We’re seeing baby boomers who aren’t sure about moving into a condo, so some of them are just renting and trying it on for size to see how it feels,” says Cityzen’s Crignano.