There’s been a lot of talk recently about the growth of investments in purpose-built rental homes. Recently the Ottawa Citizen devoted the front page of its Homes section to “Rental Units Returning to Popularity” in Ottawa.
So Why the Boom in Rentals?
There are several reasons for this ‘renaissance’ in purpose-built rental accommodations. For example;
- Millennials are postponing many traditional life milestones, like marriage and home ownership. They have also incurred more student debt, and may be struggling to secure reliable employment that would support a large purchase
- Retiring boomers are looking to unlock real-estate investments in order to support their retirement plans. Plans that likely include more travel and leisure activities.
- The glut of condos is forcing builders to look for alternative ways to market their properties. This includes offering rental accommodations.
- A confluence of economic factors favouring the construction of rentals. Tight rental markets, low interest rates and poor investment returns on other assets are all contributing factors.
Where’s the Variety?
Following a lengthy period of under investment, most purpose-built rentals are more than 30 years old. Much of it is in need of serious refurbishing. As a result it isn’t difficult for new rentals to appear differentiated, thus avoiding the need for innovation. Other than a few examples of student apartments, most of the developments look remarkably similar to concepts from the sixties. Typically you will find apartments catering to young singles and couples. They don’t look that much different from the high-rise condo apartments that they seem to be replacing.
For many people, however, high-rise apartment living is not their view of what urban living is, or should be. Today, urban lifestyles are more about community, walkability and maintenance free living. It’s not about noisy apartment living, or waiting on elevators. For these people, apartment living – which is very much synonymous with purpose-built rentals – is NOT the answer.
Our mission at Urbanlux homes has always been to make the benefits of urban living accessible to more families. In the past we have built a variety of homes, intelligently managing size and and features in order to hit a price point that would make these homes more affordable. But accessibility is not all about price. If a home doesn’t have the right feature set – for a given buyer – it won’t be accessible to him/her either. Price is always a consideration, but so is functionality, and quality is never something we will compromise on. This is where we invest a great deal – creating innovative space efficient designs that don’t compromise on quality, or spacious feel. We also create innovative designs that avoid the cookie cutter appearance of so many modern homes.
Variety is truly the spice of life, and something that has largely been missing from the purpose-built rental market. Our new purpose-built rental infill semis and multi-unit homes, will address this shortcoming.
It’s worth elaborating on this point. Quality has become a term that is so frequently used that it has largely become a cliché. We have a very different take on quality. One that cuts to the core of one of our guiding principles. Specifically, we see quality as being key to the sustainability of homes that we build. True quality in design and construction reduces the need for early renovations, since quality design and construction stand the test of time, and will not get tired or fail prematurely. In essence, quality design and construction helps ensure a longer lasting, care free home.
Rental Homes as another Means to Enhance Accessibility
In an effort to improve accessibility to rewarding urban lifestyles, we will now be offering home rentals as an alternative to purchase. Since we want to make urban lifestyles open to families as well as young singles, we intend to offer homes that fulfill our vision of what urban living should be. For that reason these homes will look very similar to the infill projects that we have built for sale in the past. They will not be towering sky scrapers, or boxy apartments. Nor will we skimp on quality construction materials. Like the homes we offer for sale, our rental properties will be located in the most desired urban communities in Ottawa. These will be homes that you would be proud to own, and will allow for the flexibility that we believe is so important to enabling comfortable sustainable living.
The only difference is that these homes will be available for rent, providing people with another way of accessing a rewarding urban lifestyle. A way that doesn’t require the hefty up-front capital commitment, or longer term commitment that typifies home ownership.
Rent vs. Ownership – which is best for me?
Okay, soon you will have access to the same quality and design attributes of an Urbanlux home in a rental property. But which is best for you; to purchase or rent? The answer is … it depends. Previously if you wanted to rent an accommodation in the urban core, you were generally left with 2 options:
- Rent a (typically older) purpose-built apartment unit from a large real-estate or property management company.
- Rent from an individual (sometimes fronted by a property management company) on the secondary market. The secondary market offers greater variety than the former and often involves newer construction. On the downside, management of these properties is less professional and reliable than you find in the purpose-built market.
Now, with more boutique developers – like Urbanlux homes – offering smaller purpose-built rental developments, there will be greater variety and quality assurance than before. So, renting will be more appealing and may be a desirable option more people.
Renting May be better if:
- Securing the necessary capital to purchase the home you want will be too difficult. You may not have sufficient funds, or you may have preferred alternative investments.
- Currently you’re living a nomadic lifestyle due to work demands or other reasons. Purchasing a home incurs substantial one time expenses, such as lawyer fees and transfer taxes. These can add up to as much as 10% of the purchase price of a home, and can be very costly if you are transacting frequently. For home ownership to make sound economic sense you normally need to be purchasing for the longer term. If you can’t see yourself in the home for 10 years or more, then it may be better to rent.
- You have a strong belief that housing prices are going to crash and remain depressed for many years to come. This is the most precarious reason to decide on renting. I can speak from experience when I say forecasts often look more dismal than reality turns out to be, and many opportunities are missed trying to time markets. It can be a fool’s quest.
- Staying extremely agile is a key concern. There are many emotional reasons for home ownership but alternatively, a desire for freedom from large commitments (including financial) can count as an emotionally charged reason to rent, rather than purchase a home.
Ownership may be better if:
- You are looking to build long term wealth. A house purchase may not be the most financially exciting investment, but historically they have provided some of the best returns for families. While they may not provide the highest rate of return available at any given time, they have offered decent returns at a manageable level of risk. They also offer the best opportunity for investment leverage available to most people. What other investment could you borrow several hundred thousand dollars to purchase, with such relative ease? A home purchase also encourages saving, enforcing a discipline that is necessary to earn returns on virtually any kind of investment.
- Investing time in home improvements is something you enjoy. Rather than throw away effort on improving someone else’s property, you are better off putting that time into enhancing your own investment.
- You enjoy the whole notion of home ownership. There are also the intangibles of living in your own home and the sense of pride and stability that it can provide. These can be important emotional considerations.
As more boutique builders – like Urbanlux homes – begin competing in the purpose-built rental market by offering a variety of purpose-built rental properties, innovation and greater choice will result. The competition will be good for the market and will help improve accessibility to truly rewarding urban lifestyles.