Why that Bus Stop Will Make You Money!

By Melanie Reuter

When the US sneezes, Canada catches a cold. We often look down south to see what trends are inevitably coming our way, and many, although not all do. Recent studies out of the US support the ongoing research that ascertains the growing importance of transportation on real estate values, essentially making the idiom of ‘location, location, location’ true again.

Yet, don’t think for a minute that the trends we are witnessing in the US when it comes to the housing decisions that are being made by Millenials will take 5, 7, or 10 years to show up in Canada. Social and other media, as well as online access to information, is increasing the homogeneity of North America’s youth and young adults. Our regional differences are divided not by the 49th parallel but instead, longitudinally. Let’s be honest, Vancouverites have more in common with Seattleites than with Torontonians who have more in common with New Yorkers and Chicagoans.

As I have reiterated in past research, today’s young adults do not want the same things their parents (the boomers) or the previous generation wanted when it comes to housing choices, priorities, and location.

In fact, sprawling to suburbia holds little appeal for many, at least for far, far fewer than in the past; unless, of course, that suburbia enabled ease of transportation, amenities, and jobs.

Before this garners a plethora of contrarians who shake their bearded heads surmising that they actually do want the picket fence in the ‘burbs, with the lawn and the Durango, the statistics are saying that fewer and fewer of you actually do.

According to a study done by The Rockefeller Foundation, of the Millennials sampled:

• 54% would consider moving to another city if it had more or better options for getting around.
• 66% said access to high-quality transportation is one of the top three criteria for deciding where to live.
• Nearly half of those who owned a car said they would consider giving it up if they could count on public transportation options.
• 86% said it was important for their city to offer opportunities to live and work without relying on a car. (Rockefeller Foundation. April 22, 2014.) 

But back the bus up…it is not just the twenty-somethings; baby boomers also want accessible transit and walkable communities. (American Planning Association. April 20, 2014. Investing in Place.) Think about it, many empty nesters want to wander out of their condos and over to their favourite restaurant, tai chi class, and community theatre, too. Some because they can no longer drive; others because they choose not to. Along the same lines, how many fewer Millennials are getting their drivers’ licenses now than the same age group in the last two generations? A lot less, according to statistical information. The desire is waning, the costs are increasing, and the need is dissipating for those who live in cities with excellent transit (and even in many of those that don’t). In fact, nearly half of the car owning respondents in the Rockefeller Foundation survey said they would give up their car if there were a range of reliable transportation options.

Are you listening Hamilton? Chilliwack? Regina? Failure to implement transportation options as your population moves from car-centric to amenable to public transit to reliant on public transit will mean potentially 54% of your young people will move to Vancouver or Toronto or Calgary. In the long run, median ages will increase, income tax bases will decrease and consumption will diminish. Worse, cities will stagnate, innovation will be stymied and development will dissipate. Cities without useful public transportation will become Coral Gables but without the good weather. Cities want and need young talent in order to grow and prosper.

Real estate investors, keep this information in mind when making buying decisions. When buying and holding, consider who your renters are and will be in five years. Upon exit, who will buy your properties? Single family homes are still highly sought after and I don’t anticipate this waning dramatically as supply dwindles in favour of more multi-family builds. However, in some Canadian cities, they make no cash flow sense to the real estate investor.

RBC’s latest Housing Trends and Affordability report shows that the price of a Metro Vancouver detached bungalow (not just Vancouver City) rose six percent to $832,600 in the first quarter of 2014 compared the same period in 2013, making its affordability index 82.4 percent. For a two-storey house, the value increased five percent to $869,300 in the first quarter, pushing its index to 86.5 percent.

This means that it takes 82 and 86%, respectively, of the average PRE-Tax income to afford a median priced home in Metro Vancouver. I said pre-tax by the way…that means you haven’t paid income taxes yet, or utilities, or employment deductions, or a bottle of wine. That doesn’t bode well for someone wanting to the picket fence experience in Metro Van; it also means with a median price point of $800k and change, there’s NO chance of cashflow (without 75% down)!

My point is that tight inventory and, in all likelihood, no switch back to single family home development when the cost of land is so high, means if you have purchased single family homes, it is not as if you will have difficulty selling them upon your exit. There will still be buyers! It is just becoming less and less likely that an average family will buy them.

One thing it might mean is that if you have a home located very near to a rapid transit node, rezoning to a higher density could be very likely, thus increasing the value of your asset. Look for potential for rezoning to higher densities wherever you decide to purchase as an extra bonus (or a new strategy).

Melanie Reuter is the Director of Research with REIN and a Real Estate Investor owning both single and multi-family units. She has a Master of Arts Degree from California State University, San Bernardino and a BA from Simon Fraser University in Burnaby, BC.