Several friends of mine own a condominium unit but don’t live there. Instead, they are renters when it comes to their family home (a larger condo, a townhouse, or the main floor of a small house).
Is this a uniquely Vancouver experience, or the start of a broader urban trend in North America?
Here’s how it has happened in Vancouver. A young couple together buys a condo in the downtown area (Yaletown, Coal Harbour, etc.), maybe a 1 bedroom unit. They love living and working in close proximity and in the walkable, amenity-rich milieu that higher density neighbourhoods can offer.
A few years later they decide to have a child or children, and quickly the 1 bedroom unit is too small. Suburbia and long commutes offer no appeal and really nor does having that suburban house (with lawns to mow, gutters to clean and other time and money sinks). They like being able to get to-and-from work quickly, allowing for more family time. Plus, they have lots of friends with children downtown–this is their community.
But, if they want another, larger, downtown unit, the costs of selling the one bedroom and buying a larger condo or a townhouse is quite high (in part because of market lift since they first bought in). By contrast, the cost of renting that larger condo or townhouse is much less, especially when offset by the rental income they can achieve from leasing their owned 1 bedroom unit. (For example, rent out the well-located 1 bedroom for $1700 and then rent a larger place for $2200/month; by contrast buying the larger place might cost $3200/month–or more–in mortgage and condo fees; if they moved to a slightly less expensive neighbourhood still near downtown, they might be able to rent a large 2 bedroom place for the $1700).
They keep owning the 1 bedroom unit, as an investment. The rent covers most of the mortgage and carrying costs initially, and over time as they pay down more of the principle, the rent fully–or more than–compensates for the carrying costs.
This scenario allows the family the benefits of old fashioned home ownership where they have a nest-egg at the end of 25 years, or equity should circumstances change and they wish to buy a different home. It also allows them the flexibility of renting in terms of being able to move should employment needs change or if they need to relocate for children’s schooling.
Owning the 1 bedroom is also an investment in the city, to which they are also contributing as citizens who work and play there.
So what do you think? Is this a bizarre Vancouver anomaly? A once-in-a-market-cycle phenomenon? Or something that is happening or could happen in many other cities going forward?
(P.S. I’m now on Twitter)