Calgary’s housing market used to be rock solid, built on a firm foundation, but tectonic shifts are changing the way people choose to live.
Inner-city condo developers in particular have been “seeing the market moving beneath their feet on a weekly to monthly basis over the last couple of years,” says Dave MacKenzie, vice-president of multifamily and land with commercial real estate firm Avison Young in Calgary.
These developers are deciding to convert buildings from condo ownership to rental either before construction has begun or after construction has started. In some cases, developers have changed course after selling some of the units, meaning they are returning deposits on sales made earlier in the process, he says.
Developer RNDSQR, which is building a 56-unit project in the inner-city Calgary community of Marda Loop called Courtyard 33, recently announced it was switching from its original plan to sell all the homes to being entirely rental.
Company president Alkarim Devani says they changed their model because the market had changed. More of the potential residents were moving away from thoughts of home-ownership and choosing to rent instead.
“If you think about who I think is probably our highest demographic – Gen Z-ers and Millennials – it’s a lifestyle shift,” he says.
People are starting to value home ownership less than in previous years and opting to rent in an inner-city urban neighbourhood rather than buy in the suburbs for a similar cost. They value living in the inner city or older urban communities with all their amenities more than they value the idea of owning a home if it means they have to live in the suburbs.
This is a change from the approach that has as been the norm for decades, in North America at least, when the dream of home ownership was held out to be the way to go. Renting was something you did when young, but people got onto the property ladder as soon as possible.
“It’s something that we see, you know, in Europe … where home ownership has never been a necessity, it was a luxury. I think in North America, it’s always been viewed as a necessity and I think there’s always been a negative stigma to renters, which wasn’t always fair or accurate. I think that’s part of the conversation we’re having today,” Mr. Devani says.
There’s no stigma to renting in New York, Paris or London, where high property prices mean home ownership is only for the few.
However, the purchase price of homes isn’t the only reason for the shift in attitudes.
“There are a lot of moving pieces today in the multifamily market in Calgary and a lot of the contributing factors to this,” Mr. MacKenzie says.
The volatility of the market, particularly for those who saw the real-estate collapse of 2008 and 2009, means that the reputation of property as a safe investment has been undermined. The real estate market has been “nerve-wracking” since then, Mr. Devani says.
Recent changes to mortgage rules to make it tougher to qualify for a home loan have played a part, as has the recession, which has led to job losses and unstable employment in Calgary.
“One of the interesting things about this generation is that they’re growing up in a relatively volatile economic setting,” Mr. Devani says. “I actually just think they’re making smarter investment choices, they’re being smarter with their money, especially with volatile markets in volatile times.”
RNDSQR looked at studies and recognized that millennials and younger generations wanted an inner-city lifestyle and flexibility more than they wanted to own a home. They also saw that more Boomers were looking for flexible living options, including the ability to be away travelling for moths at a time.
So, RNDSQR shifted its plans to match and, when construction is finished in about 14 months, all the units will be rented and managed by the company.
Rents at Courtyard 33 will range from about $1,200 a month for a smaller unit up to about $1,800 a month. About 60 per cent of the units will be one-bedroom and 40 per cent two-bedroom.
There will be flexibility in the rental program, including options to lease for shorter period such as six months. The company plans to run a test-pilot program offering furniture for rent.
Included in the apartment rent will be access to neighbourhood amenities such as a coffee shop, craft-beer seller, high-end ice-cream outlet, a fitness facility or a yoga studio. This aims to meet the lifestyle desires of residents as well as increasing engagement with the community.
Mr. Devani says the financial barriers to getting access to this urban lifestyle are lower, because all that’s needed is a security deposit of a month’s rent, instead of finding tens of thousands of dollars to put as a down payment on purchasing a home.
Mr. MacKenzie of Avison Young says Calgary has come to the purpose-built rental market later than other major cities across Canada, partly because there was an overbuild of condos for sale just as the economy took a hit.
“You kind of had the triad between the Millennial mentality, the mortgage rates and the economic climate. I think it all plays into the hand of much more buoyant purpose-built apartment market that we are certainly experiencing in Calgary,” he says.
That market shift is here to stay, he says. “As the economy improves in Calgary in the coming years, I think you’ll see the purpose-built [rental] market just gain more and more traction as time goes on.”
Mr. Devani agrees. His company looked at how other industries had been through unexpected disruptions and sees the same for the condo and apartment rental markets. Airbnb has disrupted the hospitality industry and Uber has done the same to the taxi/transportation business. Now, it’s happening to homes, and it’s here to stay.
“I think every developer in the city that’s building condos right now, if not moving to rentals, they are seriously considering it,” he says. “Our path forward at this point is to really focus on creating these programs on the rental side.”
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