Value: Weighed and Measured
Grey power fueling urban real estate updated
Property Biz Canada
Tue Jul 31 2012
When Statistics Canada released its latest census data over the spring, the rapid growth of Canada’s suburban communities dominated media headlines. However, with an aging boomer population in search of the conveniences of downtown living, the intensification of the city centre is a trend that will not only continue, but accelerate over the next two decades.
Canada's population grew by 5.9 per cent between 2006 and 2011, according to the census data. In metropolitan areas — which include both city centres and their surrounding suburbs — the population grew by 7.4 per cent. While city centres grew by an average of 5.3 per cent, the biggest spurt was seen in Canada’s suburbs, at 8.7 per cent.
On the surface, the story appears to be all about the ’burbs, where, the census data tells us, young families continue to flock in search of more affordable housing options that have a driveway and a backyard for the kids.
However, the data also revealed the accelerated rate with which Canada’s population is greying. The number of seniors aged 65 and over has increased by 14.1 per cent over the past five years, double the growth rate of the population as a whole. A record 42.4 per cent of the working age population is now between the ages of 45 and 64, compared to only 28.6 per cent in 1991.
Seniors 80% of housing demand in 2030
While young people may be flocking to the suburbs to raise their families, it is their parents and grandparents who will be going in the opposite direction, and in greater numbers. Condos and apartments in the city centre offer the convenience of low maintenance, reduced commute times, and close proximity to services, shopping and leisure activities. According to the Conference Board of Canada, 80 per cent of new housing demand by 2030 will come from seniors. The Board also forecasts that the demand will be for easier-to-maintain multiple dwelling units, with this residential property type to account for 68 per cent of all housing, compared to the current figure of about 47 per cent.
The migratory trends of an aging population will drive increased densification in city centres across Canada regardless of whether local governments are actively promoting densification. What does this mean for the real estate development industry and property valuations in particular?
The most obvious is increased property value – the greater the appetite for downtown living, the greater the asking price for downtown housing options. This is simply the nature of a market that is driven by consumer demand. As we have seen in major cities such as Toronto, developers are quick to respond when they see an opportunity to make a profit, while cash-strapped municipal governments are eager for the new tax revenues that come of densification.
As a result, speculative land buying will increase, creating a 'seller beware' environment, in which property owners are advised to investigate the future development value of their property versus its current market value when a developer comes knocking with what may appear to be a premium offer.
NIMBYism headed for a spike
NIMBYism, or 'Not in my back yard,' attitudes will undoubtedly spike, particularly in mid-sized cities such as Ottawa, Halifax and Saskatoon. This can become a costly and acrimonious irritant to any development if city hall has not taken steps to ensure it has in place a clear and consistent process to govern the approval of new development and ensure the needs of a community are well-served.
Higher property values in one area of a city leads to a shift in the overall property tax burden, which can make it more cost-effective for the city to extend key services and build new infrastructure, such as light rail transit, for some residents, but not others.
Increased population density in any one part of a city makes the economic case for additional non-residential development, such as retail, and new hospitality and entertainment venues, such as restaurants and theatres. Simply put, where strong residential development goes, commercial development is soon to follow.
These are the key trends and market dynamics that will drive the real estate development industry, and property valuation, in cities across Canada for years to come as boomers and seniors downsize and look for more convenient living options. Of course, how all of this plays out will vary from city to city. In future articles, we’ll explore these trends in more detail against the backdrop of what is already happening in urban markets across Canada.
About John Clark: With over 30 years of experience in the national real estate appraisal and valuation industry, John Clark (BA, AACI, P.App., FRICS, Chartered Valuation Surveyor) is a leading expert on real estate matters that impact the value of commercial, institutional, residential and other special use properties. He joined The Regional Group of Companies Inc. in 1988 and has served as Vice-President of Valuation and Consulting since 1990. He is a Fellow of the Appraisal Institute of Canada and served as its National President, 2001-2002.