Rent versus buy: The latter gains momentum

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Rental apartments now make up a staggering 70 percent of all new housing starts.

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New data shows that housing developers are not targeting people who want to buy property, but those who, either by choice or because they have no choice, prefer to rent property.

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Purpose-built homes across the country now account for a staggering 70 per cent of all new home construction, according to the Canada Mortgage and Housing Corporation's (CMHC) Fall Housing Report.

“New condominium units fell in most key markets as slowing pre-sales led to project delays and cancellations,” the report authors said. “Meanwhile, the number of purpose-built rental properties has increased sharply, helped by government support and a shift among developers towards the rental market.”

As for what's happening in the Greater Toronto and Hamilton Area (GTHA), a new report from Zonda Urban “shows a market that struggled during the summer months as sales of townhomes and condominium units fell to their lowest levels since the early 1990s.”

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There were no condominium apartment starts during the quarter, but the total number of rental starts was 3,820.

“After similar quarterly data analyzes for 20-plus years, the third quarter was comparatively difficult,” said Pauline Lierman, Zonda's vice president of market research.

“However, we are at an inflection point for the industry, with more players recognizing the need to lower prices as inventory grows by at least 500+ units per quarter, and also seeing a big acceleration in new townhome sales.”

There were 633 sales during the quarter, including 360 townhomes and 273 new condominiums.

Sales activity “represents a new low for the GTHA market, which peaked during the pandemic with a record 6,605 condo sales in the third quarter of 2021,” Zonda said.

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Richard Ramiz, co-founder and CEO of Zown, an online brokerage where qualified buyers can get up to $25,000 toward a home, says overall confidence levels among potential home buyers have been “significantly down.”

He adds that while prices have dropped somewhat, “they are still out of reach for many potential first-time homebuyers.”

“For a down payment, you're looking at saving $40,000 to $50,000 to be able to buy a home. When you're already paying $3,000 to $4,000 in rent, it's nearly impossible to have any disposable income to save for it.”

As a result, Ramiz says, a lot of people “get stuck in this rent loop. And the only way to help someone get out of that is to actually lower the rent that they pay, and therefore they actually have some disposable income that they can put aside for a down payment.”

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Compounding the problem, he notes, is the fact that first-time home buyers “are the driving force behind the entire real estate market. They're buying a house from someone moving up the ladder.”

Unfortunately, says Ramiz, this segment is constantly shrinking: “It used to be more than 30 percent of the entire market segment, but today it is below 20 percent, which means the buyer pool is shrinking.”

He says there needs to be more creativity in the buying process, for example, the company he co-founded offers qualified buyers upwards of $25,000, which comes from commissions charged to the real estate seller.

“At the end of the day, the system is designed in a way that doesn’t help first-time buyers,” he says. “There are a lot of people who benefit from keeping them as tenants.”

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