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Can micro-units solve Canada’s housing crisis?


As several large metropolises in Canada are faced with growing housing shortages, the demand for rental apartments is at a record level.

In Vancouver, the cost of owning a home or condominium increased by 60 percent over the past three years, according to the Greater Vancouver Real Estate Board – while residents' incomes have remained fairly flat. This discrepancy makes Vancouver the second-least-affordable place to buy a house in the world, according to a 2018 survey by Demographia – and that's why the city's rental market is so popular.

Vacancy rates in core districts are less than one percent from August 2018, with some capacity, says David Venance of JLL's Capital Markets Multifamily team in Vancouver.

But investors and developers have identified a possible solution and an opportunity, in the midst of the crisis: smaller apartments.

"Less square meters means more units, which means more of a dent in the housing crisis – and more of return on investment for building owners," Venance says.

Ranging from 300 to 400 square feet, these so-called "micro-units", complete with folding beds, folding tables and creative storage options, are becoming increasingly popular in Vancouver. The Reliance Properties Hudson apartments in downtown Vancouver, with a studio layout of 250 to 380 square feet, have received high demand.

Items for sale are also becoming smaller and see a great demand. "Micro condo" developments are sold out during the presale in Downtown Vancouver, says Venance. And almost half of the baby boomers in British Columbia are planning to reduce the property they own by buying an apartment block or mansion, according to a Royal LePage survey among Canadians born between 1946 and 1964.

"Living in Vancouver, you only need a 300 – a square foot home, because you have a backyard of three million square feet, "he says.

The role of the government

An influx of foreign capital – especially from China – willing to pay the highest dollar has further exacerbated the housing crisis in Vancouver.

While data from the city show that foreign buyers have only about five percent of the housing stock in the Vancouver metropolitan area, the numbers are several times as high for new apartment buildings, according to an analysis by Simon Fraser University.

The Vancouver government recently introduced new taxes and measures to discourage foreign buyers. Some municipalities even go so far as to completely eliminate the possibility of selling, destination zones exclusively for rent to ensure that the supply of apartments does not decrease further. In May 2018, British Columbia issued legislation to give municipalities the authority to determine the zone for rent only, with Burnaby being the first city to use the area.

Some believe that more needs to be done, including the re-use of land to allow for denser high buildings. The majority of the country in Vancouver has a single-family location, making approvals for micro-units difficult.

But the rewards can be high. Projects of this type are likely to lease quickly and have very low vacancy rates – as long as they are located in accessible neighborhoods with excellent throughput options, Venance says. Especially apartments in trendy locations that are meant to attract millennials who eat a lot of outdoors, spend time outdoors and simply want to go to work, will do well. Most millennials can not afford to buy a house in or near Vancouver – but that does not stop them from settling there.

"People are still coming in – they expect another million inhabitants by 2041," Venance said. 19659002] Working with what you have

In Toronto, a limited housing market has also tightened the rental market.

"We are at one per cent vacancy in the GTA," says Michael Betsalel of JLL & s Capital Markets team.

Land costs in Toronto are often insurmountable for developers who can build less in other Canadian markets or in the United States. This makes new developments of micro-unit complexes more difficult than in other cities. Instead, owners of existing multi-family buildings have begun to add density to former green spaces or parking structures.

"The majority of the new, specially built rental offer is being built on existing rental locations, where a large grass garden, tennis court or a large parking space outside can be used for extra density," says Betsalel. "It is essentially free land, the infrastructure is there – another tower."

Click to read about Diversification of Canada in real estate in the United States.



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