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Wednesday, February 21st, 2024

things come in small packages for millennial buyers

This is the second in a series of stories looking at the challenges faced by different generations of people who are in the market for a home – from first-time buyers, to growing families, to boomers who are downsizing.

A property investor recently walked into the marketing office for a Surrey, B.C., condo tower and asked to purchase 100 units.
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Marketer Vince Taylor couldn’t completely fulfill his wish, because one person owning one-quarter of the units in a building would present challenges for a strata council. But it wasn’t anything unusual, he says. The investor market is thriving, in large part because an influx of millennials is fuelling both the rental and purchasing markets.

“There’s an appetite in the investment community to purchase as many units as they can get,” says Mr. Taylor, partner with Platinum Project Marketing.

Rents are high and interest rates are low. And millennials are either renting or purchasing condos – a dream scenario for both investor and developer. The young market that is purchasing those condos is buoyed by the low interest rates, as well as the arrival of small, affordable condos. Some of those condos are even micro-sized.

The 36-storey, 406-unit Evolve tower in Surrey includes 316-square-foot micro condos priced at $93,900, marketed as “the most affordable homes in Canada.” To make it even more appealing to young buyers, the developer is offering to cover the bulk of mortgage payments so that the smallest units will cost $1 a day, or $30 a month.

“We will pay the difference for you in the first year,” says Mr. Taylor.

Developers with the millennial market in mind are choosing Surrey because it’s one of the fastest growing cities in Canada, with an estimated 1,200 people moving there each month. One-third of the city is under 19, a ready market for the future.

“We get people who say, ‘I wouldn’t want to live in this. It’s too small,’” says Mr. Taylor. “But if you’re 18, it’s awesome. The kid is tired of living in mom and dad’s basement. He’s working, making $15 an hour and now he can afford [to buy]. And he gets stainless steel appliances and granite counters.”

The condo market used to be driven by people who were downsizing and looking for something convenient, smaller and manageable. But it’s now driven by affordability, says Mr. Taylor. Young adults are often pushed into the market by parents who are concerned that they’ll miss out on their chance to be a homeowner.

People between their early 20s and mid 30s are driving the condo market across Canada, fuelling markets in Vancouver, Calgary, Edmonton, Saskatoon, Toronto and Montreal. Montreal and Saskatoon are particularly hot condo markets right now, says Mr. Taylor, whose company has projects in those cities, as well as Surrey and Calgary.

In Calgary, the 25 to 34 year olds have accounted for 62.5 per cent of the population growth downtown between 2010 and 2014, says real estate researcher Matthew Boukall, for Altus Group.

“We can’t prove that all of the young people moving to the downtown are owners, but I’d infer that at least 50 per cent are,” says Mr. Boukall.

More than 25 per cent of the buyers are getting financial assistance from parents and grandparents, says Mr. Taylor. He calls it “a Canada-wide phenomenon.”

That’s because there’s still a strong cultural belief in the power of real estate, the idea that to own is integral to one’s financial security.

“We know that if we ask that millionaire, ‘Did you rent all your life?’ the answer will be, ‘No,’” he says.

Winyee Leung just purchased her first condo in Vancouver’s Mount Pleasant neighbourhood with her parents’ encouragement. Ms. Leung, operations manager at a software company, bought her 683-square-foot condo for $450,000. She had been happily renting around Cambie Street for years, but when her parents offered to help finance her, she took them up on the offer. She was also motivated by her 2.2-per-cent interest rate, and the $950 mortgage payment compared to her $1,200 rent. With her parents’ help, some savings, and money borrowed from her registered retirement savings plan, she managed a $200,000 down payment.

“I’m single, I don’t intend on having any kids, and I really need to start planning for my future, pronto,” says Ms. Leung, who grew up on Vancouver’s west side. “So that’s why I started looking.”

Ms. Leung is fairly typical of a lot of young Vancouverites. She chose her east side neighbourhood because it’s central to downtown, it’s walkable, and close to transit. She seldom drives a car.

“I have several friends who are renting and looking to get into the market, and they are struggling,” she says. “They are realizing how competitive it is, how expensive it is getting.

“These are solid young professionals. They make pretty good money, but it’s a little scary.”

The scary part is, if they don’t get into the market now, they worry they never will, she says. However, they also don’t want to live in something that will lower their standard of living, so they continue to rent.

Developer Jon Stovell of Reliance Properties specializes in delivering housing to those young people who are eager to purchase real estate, and also willing to live small. He believes that the millennial market has a lot of untapped potential, but he says cities such as Vancouver aren’t keeping up, with their outmoded regulations.

He has led the way in the emergence of the micro condo, with units that are less than 300 square feet. He had tremendous success with the 30-unit Burns Block, in Vancouver’s downtown eastside. At around 264 square feet each, those rental units continue to be snapped up as they come available. It shows that there’s a strong young-adult market that is willing to trade space for affordability and walkability, he says.

He tried to apply the same model to a condo project in downtown Vancouver, but has come up against a city bylaw that says a condo can be no smaller than 398 square feet. Rentals are an exception. As a result, it will most likely be a rental project, with rents from $800 to $1,200 a month, he says.

Micro condos only work in dense, transit-oriented environments, or what Mr. Stovell calls “energy centres.”

“People who are 22 to 32 are so interested in these units,” he says. “They really want to be right in the city, where everything is happening. They are walking and biking everywhere they go.”

Mr. Stovell is working on his fourth micro condo project. He is about to launch sales for his Surrey project, which has a starting price of $139,900 a unit.

But he’s had success in Victoria, too, where his waterfront project had lineups down the street when presales were launched in 2012. Prices started at $110,000 and went as high as $160,000. They sold 122 units in five weeks. That project is under construction.

“There is a huge economic and lifestyle demand for [micro condos],” says Mr. Stovell. “But because of a lack of housing options, a whole segment of society is locked out of the market in Vancouver.”

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