Don't confuse short-term challenges with long-term opportunities

The COVID-19 pandemic has shaken up all of our lives and a significant portion of us are rethinking our housing needs. This shakeup has provided a lot of talking points for pundits, who are quoting data on the swift drop-off in transit usage, the rising office and retail vacancies, the plunging of downtown rental rates, and the skyrocketing prices for housing in cottage country. It is not just Toronto that is experiencing these rapid changes, it is several major cities across the globe. What does it all mean?

Folks trying to make a name for themselves will proclaim that the office is dead, and working from home is the future. Analysts desperate for online likes from doomsayers will say we don't need any more housing supply. Others with a financial interest and selling or leasing large-lot properties, automobiles and big box retail, will call for a mass exodus from the cities to the suburbs and the rural communities across Ontario.

Short-term conditions

I don't have a crystal ball, don’t know when the pandemic will end, have no idea when workers will return to the downtown office towers or when condo rental rates will begin to trend up again. However, following trends over the last 20 years, I think I have a good sense of what people really want. I cannot imagine a young university graduate picking up and moving to a rental apartment in Oshawa to work from home. Do you think a single person living with their parents in Toronto (who doesn’t own a car), is going to scour listings in north Brampton in order to get a house with a yard? As I have joked on Twitter, when the pandemic is over, is a Gen Z person really going to spend their Friday nights on the patio of a chain restaurant in Newmarket? I wouldn’t bet too much on that occurring.

You may be wondering where I’m going with this. The soft conditions in several markets is a short-term trend; the long-term trend points to higher demand in Toronto – higher rents and higher prices. Maybe it takes several years before that happens, but don’t underestimate a potential flood of immigrants to Canada when the borders are reopened. When you’re buying a new condominium unit, you have to look out three to five years into the future. What will pricing be like in 2024… higher than today? How much higher? Will downtown Toronto ever be back to “normal,” or should I invest in a highrise in the suburban markets, where condo rents have not declined at all during the pandemic.

If new condo sales in August are any indication, buyers are still betting on the future of the GTA. Recently released data from BILD revealed that new condominium unit sales (including in low-, medium- and highrise buildings, stacked townhouses and loft units), registered 2,609 new home sales, an increase of 159 per cent from August 2019 and 106 per cent above the 10-year average. That is a massive amount of activity during a health crisis.

Long-term hold

In the short term, rents are down, but they have pretty much increased in each of the last 30 years in the Toronto metro area, despite the fact that rent control limits the amount landlords can increase rents every year. If you’re buying for the long term, you have to consider long-term trends.

If you are thinking about adding more real estate to your portfolio, ensure you’re not too overweight in residential condos in Toronto. Make sure you have a long-term hold strategy and consider a vacancy allowance, repairs, legal and closing costs, and the value of your time to manage these rental units. Once you’ve determined that you want to move forward, surround yourself with an experienced team, especially a realtor who specializes in preconstruction sales, and a mortgage broker. Don’t overpay, and don’t be too influenced by incentives which may mask underlying absorption troubles at the project. And, importantly, do your own research.

Ben Myers is President of Bullpen Consulting, a boutique residential real estate advisory firm specializing in condominium and rental apartment market studies, forecasts and valuations for developers, lenders and land owners. bullpenconsulting.ca Twitter@benmyers29