Young GTA buyers shift from downtown condos to suburban homes: Here's why it's a problem

The real estate market in the Greater Toronto Area (GTA) is interesting from a younger generation perspective, specifically with the decline of condominium sales and the rise of townhomes/semi-detached/detached home sales.

Condominiums in the past were affordable and the primary purchase of first-time buyers. Their low cost and almost immediate equity return made them enticing for young purchasers. However, this is not as common these days.

Daunting market for first-time buyers results in missed opportunity and risk

As a realtor in the industry, I’ve always aspired to live downtown in a condominium where the waterfront communities are located, but higher interest rates and current sales showing loss of equity and lower prices to entice buyers makes this a huge risk for a first-time buyer. Even with a longer amortization period being offered for new builds granted by the province, it’s daunting for many younger buyers entering the market.

The hidden costs of new builds mean the majority of buyers don’t have the funds to purchase. Therefore, many younger buyers entering the market are opting out of the risk of investing in a condominium and going for a townhome, semi-detached home or even detached home in an affordable community.

This is unfortunate for everyone involved. For one, the buyer can miss out on the experience of living in a vibrant downtown community like Toronto. As well, it raises the risks for builders due to not enough interest and pre-sale purchases to continue construction, potentially leaving construction projects abandoned and “devaluing” neighbourhoods with gaping holes and partially constructed buildings.

Larger homes in affordable areas with future growth similarly priced to downtown condominiums

Buying our first property is the biggest purchase of our lives, so it makes sense for buyers entering the market to be wary of what their return on investment will entail. Builders are seeing the backlash from this, with an influx of condominiums on the market advertised for months with little to no interest due to the risk.

This can force a company to not build its future projects because its target demographic isn’t buying existing inventory. If a young working professional has the chance to buy a townhome, semi-detached or detached home in an affordable area for almost the same price as a downtown condominium with the potential of increasing its future value, picking the latter is an unbeatable decision.

Bidding wars and short-term rentals alienate younger, first-time buyers

The biggest factor in cases of buying a condominium downtown is when it comes to placing an offer and the potential bidding war that ensues. I have friends with the financial means to buy who have attempted to offer on multiple condominiums downtown. They’ve made the cleanest offers with normal conditions to protect themselves, only to be bought out by a “no conditions” firm cash buyer.

Now, it may not be the case for each condominium in the GTA, but in the downtown area alone, many are being bought out by companies with real estate portfolios only looking to add to them and run the unit as a short-term rental. It can be disheartening for anyone who is young and looking to live in the downtown core when there are so many obstacles in the way of achieving that.

There are even condominiums completely run for the purpose of short-term rentals, with the condominium board members themselves profiting. While from an investor perspective there’s nothing wrong with doing this, the flip side of that coin is that it makes it impossible to keep affordable homes for the next generation. Looking ahead, this can mean that sales in the next 10 years may be problematic for those who own homes including condominiums.

This is why many people around my age, in their twenties and thirties — a huge demographic that condominium boards need to consider — are opting out of buying a condominium downtown. It’s what I believe is the biggest reason for declining condominium sales.

An Ontario government call-to-action

There needs to be stricter policy, especially in the downtown core, regarding the use of short-term rentals specifically in Toronto condominiums.

If Ontario follows the route British Columbia took earlier this year in May with the passing of legislation to restrict short-term rentals, it could make a huge difference in buyers’ mentality around condominiums. Most importantly, it would bring more condominiums to market and decrease the current “unsold” units, estimated at nearly 26,000 on the market.

I believe if a policy akin to the one out west was created in Ontario, many buyers would be living in the condominium as opposed to renting it out short-term for the sole reason of profit.