Could a potential tenant exodus impact your real estate investment?

COVID-19 and this current health crisis has forced many people to reconsider where they should be living and working. The 400-sq.-ft. downtown condominium apartment was perfect for a short walk to work for a young and single Torontonian, providing access to nearby restaurants and was a short subway ride to your bestie’s house. With many companies allowing employees to remain remote in the post-vaccine era and house prices and rents up 15 to 40 per cent annually in some neighbourhoods, does urban living still make sense?

New condo prices have skyrocketed in Toronto over the past decade, going from $700 per sq. ft. for a brand-new pre-construction launch, to more than $1,500 per sq. ft. today. If you want a new single-family house in the suburbs, good luck, as prices continue to rise at an unprecedented pace.

Massive shift

We have witnessed a massive shift over the last 20 years with the complete revitalization of downtown Toronto, the building of new office buildings, and especially new highrise condos. The population has soared in recent years. Many buyers have chosen to live in downtown condominiums for lifestyle and environmental reasons. They want to be walking distance to cafes, shops, parks, friends, hospitals and employment, all while reducing the need for development on the outskirts of the GTA that eats up greenfield lands and increases the reliance on cars. They don’t want to pay for a parking spot, a car lease, license fees or insurance for a vehicle that sits in a garage most of the day and pumps out pollution the rest of the time.

A second group of people are living downtown for affordability reasons. They would much prefer to live in a single-family detached home in an inner-suburban community with a big backyard and two parking spaces. However, that requires many years to save for, and based on recent trends presented earlier, that number of years is rapidly increasing. They need to be as close to work as possible to save time and money, and centrally-located highrise buildings have fit that need for them in the short term.

A trend that was accelerated because of COVID-19 is an exodus out of Toronto, as people flee for less expensive housing, especially families tired of cramped conditions and expensive daycare. If you’re thinking about buying a new home as an investment, how worried should you be about prices falling due to a declining demand as residents leave? Alternatively, what if no one can afford to buy your property when you want to sell?

We will certainly see some of the older residents sell their GTA homes and move to the smaller, quaint and walkable downtown areas in places such as Peterborough, Brighton, Cobourg, St. Catharines and Niagara-on-the-Lake. However, expect most of these older residents to stay due to proximity to family and friends, and the unwillingness to start over in a new place, finding doctors and dentists or favourite restaurants. The baby boomer generation is likely to stay in their homes, and this is a big demographic group that is living longer than past generations.

Grass isn’t always greener

The second group, the ones living in Toronto for affordability reasons only, have less ability to move. If you can only afford a $600,000 condo, you have to travel pretty far to get a single-family house for that price, and you better be a handy person for all the work you’ll have to do on it. GTA buyers have driven up house prices in Niagara Falls, Cambridge, Welland and even places as far as Woodstock.

Toronto remains one of the most desirable cities in the world to live in (despite house prices). Now that borders are open again, expect record immigration, especially with the social and political unrest in other parts of the world.

My advice is to buy for the long term, and add value to the property you buy via design, renovations and additions – but stay within your budget. The grass isn’t always greener on the other side.