To own or not to own? That is the question every young adult ponders at some point in life — even before home ownership is a fiscally-sound option.
Patrick Bet-David is financial advisor formerly with Morgan Stanley and Aegon, and is now president and CEO of PHP, a company specializing in financial services and life insurance. He says that people should not rush into buying. Instead, they should think about apartment rentals until they have saved at least 12 months of mortgage payments.
“The real estate industry has done a great job persuading the public that the American dream starts with homeownership,” Bet-David says. “Hundreds of thousands of families are going through the pain and struggle of trying to not miss their next mortgage payment simply because they purchased a home prematurely.”
For many U.S. citizens, the dream of homeownership was shattered during the crash of the housing market in 2007. Soft lending standards and the over use of adjustable rate mortgages were putting debt obligations back into owners’ hands — hands that were incapable of paying for it.
“We have become a nation of finance everything,” Bet-David says. “We finance our education, cars, weddings, homes. That mindset has gotten many Americans into a ton of trouble. Instead, we need to spend more time focusing on increasing the amount of savings we have rather than adding to our total debt.”
With U.S. homeownership rates hitting a 19-year low, the reality is that many residents are renting out of necessity — not out of choice. Harder to come by financing and higher home prices have ruled out ownership south of the border and made renting the only viable option.
Since the fall of 2013, home sales and new construction in the U.S. have been on the decline. A brutal winter, tighter lending, limited supply of inventory, and higher prices compared to this time last year, have all played a role in the slowing of the U.S. market, giving the rental sector a dramatic boost.
Here in Canada, similar challenges have presented themselves, but not nearly on the same scale. Developers in Toronto continue to favour condominiums over purpose-built rental buildings, with a few notable exceptions.
The Heathview is the new, state-of-the-art apartment complex built by the Morguard Corporation in Forest Hill, Toronto. Featuring two 30-storey towers of luxury units, the swanky new residence targets empty nesters and young professionals who aren’t quite ready to purchase their first homes.
According to Brian Athey, vice-president of residential (Canada) at Morguard, the demand has been strong, with a considerable number of units already leased, well in advance of the development’s planned opening later this summer. “We expected strong demand for purpose-built rental product in this market,” Athey says. “The Heathview is the first new development in mid-town Toronto to provide an alternative to condos in a prime location with historically low vacancy rates.”
But Peter Zimmerman, senior vice-president of planning and development at Freed Developments in Toronto, says that The Heathview (and the handful of other purpose-built apartments) is not indicative of a true rental resurgence.
“Just look at the volume of condominiums that continue to be built across the city and you’ll see where the market lies,” Zimmerman says. “A significant portion of rental stock in Toronto still comes from condominium. On some level, the economics of purpose-built rental may be catching up to condo development. But most developers looking at opportunities are largely coming back to the same conclusion — that condos still make the best return on investment and they offer more flexible inventory.”
Zimmerman says that there are a few factors that differentiate the Canadian market from the U.S. “We haven’t had the same soul-searching around lending. We haven’t had the army of potential residents who have been burned by the collapse of ownership, who are having difficulty getting mortgages. For Canadians, ownership hasn’t been tarnished like it has been in the U.S. and it is still an attractive option for many households.”
If a rental resurgence were to happen on the same scale here, Zimmerman says that it wouldn’t be driven by the collapse of the housing market, rather than a shift in the economics. “The high cost of doing business, including the increased marketing costs associated with condominiums would likely drive the resurgence,” he says.
Erin Ruddy is the editor of Canadian Apartment Magazine.