In 2020, it became apparent that people renting in the city, but with homes in the suburbs, had a unique advantage. Stay-at-home orders saw more people searching for prime real estate in the suburbs where they could have more space to see out the lockdowns. Besides the apparent benefit of a bigger house and your own yard, there are more reasons that make buying in the suburbs and renting in the city worthwhile.
Issues with affordability
For specific markets, condos are usually cheaper than single-family houses and tend to attract homeowners looking to save on expenses. However, this is not always the case when examining some of Canada’s top real estate markets.
On Zillow, for instance, as of February 2021, one-bath and one-bedroom condos in Toronto were going for about C$500,000 to C$780,000. For two-bath and two-bedroom apartments, the starting prices were at C$1,000,000 and more.
In Markham, one of the top suburbs for families in Toronto, a three-bed and three-bath house had a starting cost of about C$599,900. You’re always going to get more space and value when considering a place in the suburbs. Some of Canada’s cities have been labeled as severely unaffordable, including Toronto, and present a huge barrier to prospective homeowners.
The rules on affordability between the suburbs and the city are not always clear-cut, so it’s essential to evaluate the price-per-square-foot for the living space you’re getting. You can further check out the pros and cons of renting versus buying in Toronto, explained in detail in this Paradise Developments article.
Stagnating and dropping condo prices
As people fled cities for the better part of 2020, condo prices did not perform very well as compared to detached home prices. For instance, while condo and apartment sales in the Greater Toronto Area experienced a surge in the 4th quarter, buyers were getting these properties at lower prices. With the increased supply and lower demand, buyers had more choice and greater bargaining power.
Across the board, detached home prices increased. In the Fraser Valley alone, there was an increase of up to 23%.
Does this mean that the apartment market may not take off? It’s anticipated that with the current rate of inoculation and the resumption of normal life, condos and apartments will experience increased demand, which is always good news for current property owners.
Big gaps between the cost of owning vs. renting
According to data from Canada Mortgage and Housing Corporation, the gap between the cost of renting and owning widened significantly in 2020. The biggest gap was in Greater Toronto, where apartment owners were paying up to 86% more than the costs to rent similar units. Vancouver seemed to read from the same script as condo owners paid up to 56% more than the rental prices. Expensive premiums may be one reason to consider renting in cities.
All hope is not lost. There are some cities in Canada where carrying a mortgage is relatively cheaper than paying the rent, for instance, in Victoria, where condo owners were paying up to 13% less than the cost of renting. Victoria tends to rank third after Vancouver and Toronto in terms of affordability and cost of living.
What are the advantages of renting in the city?
Certain advantages will be enjoyed by choosing to rent in the city, including:
- As the tenant, you’re not responsible for paying maintenance or repair expenses. The landlord is obligated to perform certain repairs, from leaking ceilings to hot water issues.
- You’re not going to pay any property taxes or foot other extra costs, such as the land transfer tax during closing.
- By renting a condo, you’re not tied down to less space and flexibility. It becomes easier to move to a larger apartment or purchase a home once your family grows.
- There is no initial down payment required to purchase a condo. The minimum allowed downpayment is usually 5%, and it attracts an extra charge of about 4% for mortgage default insurance. Closing costs are also 3 to 5% of the mortgage amount. These add up to about 12% on the lower end.
- Condos stay on the market for longer durations due to the rising inventory and preference for detached homes.
- It’s becoming cheaper to rent condominiums. Figures from the Toronto Regional Real Estate Board revealed that the average one-bed condo rent was down by 16.5%, from $2,209 in Q4 2019 to $1845 in Q4 2020. This trend is expected to continue in 2021.
Investing in the city vs. the suburbs
Many investors adopt the strategy of purchasing condos as investments rather than living in them. If you’re considering this strategy, it’s essential to track vacancy rates and condo prices. For instance, it’s a great time to purchase condos in the major markets as the prices have been relatively steady, if not failing. People tend to rent more in cities than in the suburbs.
There is another case to be made that purchasing properties in the suburbs for rental investment may offer more benefits. Mainly, renters in the city and suburbs have different mindsets. In the city, tenants may be less financially stable and not seek out stability. They may break their leases sooner, but renters in the suburbs, who are typically families, may have a long-term view.
You may discover that the cost of purchasing a home in the suburbs is much cheaper, and the property may generate income more cheaply than buying an expensive condo and not earning significantly higher rental income. What’s more, suburban homes have been appreciating faster than condominiums.
If you’re purchasing a property to live in, the suburbs show certain indisputable advantages. They are quiet and more family-oriented. You’ll get plenty of outdoor space, complete with a front and back yard. The price-per-foot is generally cheaper compared to that of city apartments, so your money goes the extra mile.