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Apartment living now in vogue
September, 2011
By Derek Lobo
Long an afterthought in the housing market, high rise rental apartments are once again becoming fashionable places in which to live. Social and economic changes are making affluent individuals and couples choose high rise rental living in urban centres over single family suburban homes. These trends have already reduced vacancy rates, spurred new developments and raised rents, and the changes look set to continue for the foreseeable future.
For decades, baby boomers have driven the real estate market. As this generation graduated, started work and started families, they drove the demand for larger homes, mostly located at the edges of cities. Now, however, the baby boomers are retiring. Their children have moved out and started their own families. Couples today have fewer children than they did twenty years ago.
Now many baby boomers are empty nesters looking to downsize their homes. Younger families are finding that the time they spend travelling from home to work, or to shops or their children’s school, is eating into time spent with family. As commuting times increase, large homes at the edges of urban centres have become less desirable as prospective buyers look for smaller places closer to work and other amenities.
Changes to the economy are also having an impact. During the decades when the baby boomers were the dominant demographic in the workforce, many worked in the manufacturing sector, where jobs were centralized and shifts highly structured. This enforced a rigorous separation between home and work, where a family’s home was their castle, a refuge from the hassles of working.
The developing tech sector, however, has discovered that its workers are more productive when given flexible spaces in which they can meet with their co-workers, discuss and innovate. Workers need more time and a diversity of environments to communicate with other workers about ideas. Tech companies also found that workers that spent less time commuting and had more time to spend with their family, were happier, and more willing to give their best to their employers.
These revelations have shifted tech jobs away from factory-like office park settings and back to revitalizing neighbourhoods within urban centres. In these neighbourhoods, workers have access to other amenities like shops and restaurants. Tech companies are encouraging their workers to spend more time working from home, and many tech workers are looking at ways to shorten their commutes. But with space at a premium within cities, the solution for couples searching for a place to live has been to look up.
This new interest in urban living has sparked a boom in high-rise development, both in the form if condominiums and rental apartments. Condominiums made high-rise living fashionable, but many prospective buyers find themselves turning to rental properties as a means of saving money. Despite mortgage rates being at historic lows, the intensity of the condominium market has made properties more expensive to purchase than to rent, considering mortgage carrying costs, down payments and condo fees. Renters have more money in their pockets month-to-month, which makes living in a rental apartment less stressful financially than working to own the same property.
Apartment dwellers save even more money compared to single family homes because their maintenance costs are lower, in time as well as in money. They don’t have to mow the lawn or keep as big of a garden, and they have a smaller space to keep clean. Apartments have less storage space than single family homes, but many tech workers, retirees and younger couples are spending less money on consumer goods these days, preferring to spend their money outside their apartments at fine restaurants or on other services offered in the surrounding neighbourhood. Apartments located in neighbourhoods with a diverse set of amenities are ideal for these new demographics that are less interested in single family home ownership.
Already, vacancy rates have recovered from the 2008 recession. Earlier this year, the Canada Mortgage and Housing Corporation released a rental market report for centres across Canada. In the Greater Toronto Area, it found that vacancy rates had dropped to 2.1 per cent in 2010 compared to 3.1 per cent the year before. Average rents for two bedroom apartments increased by 1.8 per cent. This pattern was matched in Vancouver, where vacancies dropped to 1.9 per cent. In Ottawa, vacancy rates stand at 1.6 per cent, with rents increasing on average by 3.7 per cent . One of the factors CMHC cited as driving these numbers were individuals turning away from home ownership and choosing to rent.
With apartment renting now in fashion, developers are being challenged to provide amenities that cater to a more affluent clientele. Retired baby boomers are living off of life savings acquired after paying off their mortgage. Young couples often have two incomes to spend between them. Many prospective renters are even two friends rather than a couple, who are pooling their resources for a better place, and many are demanding better luxuries. Many prospective renters want a large second bedroom. The aging baby boomers are demanding improved accessibility features. These are amenities new apartment developers will have to install in their buildings if they want to earn the top rents. Building managers of older apartments will be challenged to retrofit their units with these amenities, so as not to lose tenants to more modern units.
Developers can also respond to the increasing demand for new apartments by diversifying the market. With prospective renters pooling resources to afford the apartments they need, efficiently designed smaller apartments may better serve these individuals. These sub-bachelor units offer individuals a break on rent, while at the same time offering landlords a greater return per square foot.
With baby boomers getting older and families getting smaller, and with more and more prospective homeowners turning away from suburban-style living, trends indicate that demand is only going to increase for high-rise apartments in urban centres. Developers and municipalities alike will be challenged to meet this demand, but those that do can expect to reap considerable returns, both in rent, and in vibrant and diverse neighbourhoods increasing the prosperity of our cities.
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