Perspectives: A Baby Boomer Shaped Hole
Shrinking condo sizes and skyrocketing prices are pricing downsizers out of the market
For the first time in the history of Canada, the number of people aged 65 years or over now surpasses the number of children aged 14 years or under. This unprecedented demographic shift means that the market is beginning to be flooded with affluent 65-plus baby boomers looking to downsize from their large family homes.
In the next five to ten years, even more baby boomers will be retiring and looking to downsize, so in many ways the baby boomer is the perfect customer for savvy developers to be targeting right now. Unfortunately, a combination of poorly designed policies and untimely market forces have severely limited the affordable options available to this highly coveted buyer.
While the idea of maintaining a two-storey home in retirement seems like a viable option for some retirees, home upkeep and mobility concerns in homes with flights of stairs are driving many baby boomers towards large-sized condominiums.
There’s just one problem: trying to find an affordable living space that can comfortably accommodate a downsizer is still almost impossible. This is true not only for the existing stock of condominiums, but also for new developments coming to market.
As a condominium sales and marketing consultant, I have the opportunity to meet with several developers on a weekly basis to see firsthand what the current market trends are. While many developers are doing an excellent job at creating products to meet the needs of young professionals, the current design and suite mix across the city is simply not well situated to meet the needs of the baby boomer demographic.
Ironically, a large part of the problem stems from the way the city has been pushing for more multi-bedroom suites. At first this might sound like a good thing until you look at how they are doing it.
It all starts with development fees. They are a huge source of revenue for the city, and they are levied based on how many bedrooms a suite has. The difference in development fees between a one- and two-bedroom suite can be as much as $10,000.
Under the current system, a developer may design a 650-square-foot onebedroom- plus-den suite, only to have the city come back and tell them that they will be charged a two-bedroom suite development fee for that suite layout. This means that the developer will have to redesign that suite so that it can be marketed as a two-bedroom unit.
Because this trend of pushing for more bedrooms is happening across the city, it means the average square footage for one- and two-bedroom suites is going down. At the same time, suite pricing is strongly tied to the number of bedrooms, so this phenomenon is also driving the cost per square foot up. The end result of these market and policy forces is that the average baby boomer is getting pushed out of the condo market.
Imagine you are a retired couple currently living in a 3,000-square-foot home worth $1.5 million. You want to downsize to a 1,500-square-foot condo that is easier to maintain but still gives you enough space to have the kids come to visit. The average cost for a downtown condo of 1,500 square feet is almost exactly the same price as their current home. This means that they are getting half the square footage for the same price. Not much of an incentive.
I recently met one downsizing couple who did the math and thought it would be better value to spend $50,000 installing an elevator so they can stay in their home as they age.
A related issue in the lowrise market is that developers are not building bungalows, either. This is mainly because the cost of land has increased so much, a 2,400-square-foot home in King Township would cost in upwards of $1.2 million. Land has now become so much of the cost of building that a two-storey detached home in the same community, on the same lot size, would cost essentially the same. Where can one retiring find money to live on if they are paying so much more to downsize?
Back in Toronto’s highrise market, we see another problem. The current inventory of larger luxury condo suites are simply not priced to sell. There are some developments that have suites over 2,000 square feet priced anywhere from $3 million to $5 million, plus the cost of monthly maintenance fees. This is simply not an appealing option to many people who could own a very nice Toronto home for much less than this.
The solutions to these problems are complex, but developers and municipalities will be wise to consider them carefully. With over 23 per cent of the population retiring in the next 10 years, the time is now to find solutions that will appeal to this near ideal target buyer.
Vanessa Bellemare is vice president of sales and marketing at International Home Marketing Group. IHMG.ca