In the City of Toronto, there are still construction cranes everywhere, after more than a decade of frantic development. More high-rise buildings are under construction there than anywhere else in North America. Most of the buildings are mixed-use condominium and retail buildings, but there are also several new office buildings underway.
It’s part of a trend being seen across Canada and around the world, and one that real estate investors are enthusiastically embracing.
“Intensification of downtown areas of cities is continuing in Canada’s major centres to combine with reverse migration from the suburbs….(It’s) one of the most forceful and rapidly emerging secular trends in both corporate office and residential real estate,” says Emerging Trends in Real Estate 2014, by PwC Canada. “Both residents of suburbs and employees of companies in suburban offices have grown tired of their long commutes and are reacting by moving into downtown areas…”
Leading the march back downtown are the children of baby boomers, described by Statistics Canada as those born from 1972 to 1992. At a recent conference hosted by Canada Mortgage and Housing Corp. (CMHC), Masha Dudelzak of CBRE said that 50 per cent of downtown Toronto residents are now echo-baby boomers, while only 25 per cent of suburban residents are in this age group.
Representatives of two developers who target this demographic, but in very different ways, spoke at the CMHC conference. Peter Zimmerman, director of development for Freed Developments, said his company is building condo apartments in “neighbourhoods with the greatest appeal” in downtown Toronto. “Our emphasis is on locating on public transit, in attractive city neighbourhoods near shopping and restaurants.”
First-time buyers in the 25 to 35 age group are the prime market, buying one-bedroom units in the 500-square-foot range. Forty to fifty per cent of the buyers are investors who rent out the units, he said.
In contrast, Dave McLean, president of GTA Homebuilding at Mattamy Homes, said his company is building thousands of homes in the suburbs. The entry level home is a “back-to-back townhome” with no backyard, three storeys of living space and 1,300 to 1,800 square feet of living space.
“We understand that some of our buyers are investors but we have long discouraged that,” said McLean. “Our communities sell our homes, and five to 10 years after they are sold out, we like to think it shows well. We’re concerned that investors renting out the properties en masse will take away from the community and the curb appeal.”
What’s the difference between the downtown and the suburban buyers? McLean says his buyers are looking for green space and more square footage than they could get in a condo. There are more families buying in the suburbs and it’s not unusual for a couple to visit the sales office with their parents, who will be contributing financially to the sale. Some parents are using the home as an investment while their children live there, and frequently the parents are also coming to live in the home with their children. He says many of the echo-boomers who buy in the suburbs are still commuting downtown to work.
Zimmerman says singles and couples are the vast majority of buyers for his firm’s projects, but they also often get help with financing from their parents. It’s not unusual for a parent to buy a condo for their child to live in while attending school downtown, he said.
“We court investors, and the units they buy become rental properties,” he says. “We don’t think it has a noticeable impact on the quality of life of the people who live there.”
In Toronto, hardly any new rental apartment units have been built for several years. Condos have filled the vacancy gap and are still in demand, with rents rising.
Both Zimmerman and McLean say their echo-boomer buyers don’t stay in entry-level homes for long. “They often move up, right in the same neighbourhood,” says McLean.
“One of the truths in the business we are in is that every person who moves into a 500-square-foot apartment will move on and move up in four or five years,” said Zimmerman. “Most want to buy a larger home in downtown Toronto.”
What about those who want to start having a family but still want to enjoy the vibrant downtown lifestyle? Are downtown developers working to build larger, affordable family-friendly condo units? Not so much, say the developers.
“There is still some affordable ground-related housing available in the city,” says Zimmerman. But with house prices still rising faster than incomes, affordability is the key driver when new units are being planned. “First-time buyers are price-point sensitive,” he said. “The vast majority of suites are trending down – they are even smaller.”
McLean says the same is true in the suburbs. “We’re building a lot more affordable product, such as stacked townhouses and smaller square-footage homes. We recognize that if we are going to be a builder/developer in the GTA, we’re going to have to be building up.”
“It’s a huge challenge…,” said Zimmerman. “I think the development industry will catch up, but it will be tough…”
CMHC says that the 25 to 44 age group represented about 11 per cent of the households in Ontario in 2012, but will grow to more than 20 per cent by 2016 and will represent more than 33 per cent of housing demand in the province by 2021.
Written by Jim Adair