Episode 11: To buy or to rent? Navigating the real estate market in Toronto

Nadine Habib:

From the corner of Bay and Dundas in downtown Toronto, this is Like Nobody's Business, a podcast of thought leadership and business innovation. I'm your host, Nadine Habib.

The challenges students face when it comes to housing and commuting in Toronto is a familiar tale, and one that we dove into on today's episode of Like Nobody's Business. I sat down with Murtaza Heider, Associate Professor of Real Estate Management at TRSM. He talks about his advice for students when it comes to home ownership, his research into transportation in Toronto, and his thoughts on the RU pass.

Hi, Murtaza. Thank you for joining us on the show today.

Murtaza Heider:

Lovely. Glad to be here.

Nadine Habib:

Let's start off by asking, how difficult is it going to be for recent graduates, or young professionals, to eventually own a home in Toronto, and is it even a viable option for a lot of people?

Murtaza Heider:

In terms of younger cohorts, especially millennials, given the rapid increase in housing prices between, say, 2015-16 and the early part of 2017, there is now a disconnect between what people earn, especially the younger workers, and what the prices are.

 So the question is, if someone, a young worker, a recent graduate, would like to own a house, the question is, are they interested in owning a house, as in a low-rise, or is it a condominium that they are interested in?

Based on that choice, they can determine where they would like to be. They can buy a condominium, a smaller unit in downtown, or it could be slightly farther away, either on the GO transit, GO line or subway line, and buy a slightly larger property but at some commuting distance from downtown.

But more importantly, for young workers, especially millennials, you have to understand and ask this question, too: Why would you like to buy in the first place, especially so early in your professional career? Buying ties you to a place. There are fixed costs associated with buying a house: the taxes you pay, the brokerage fees you pay are non-refundable. Once you buy a property, you make those investments, legal fees and what-not.

Then when you decide to move, let's say, and because you're so early in your career that an interesting opportunity presents itself, it happens to be in the States, or in Vancouver, or in Montreal, or beyond. And then you ask yourself, "Well, I'm getting a raise, but is it enough to pay for all the costs that I have incurred in buying the house, and I will reincur in selling this house.

So, at the earliest stages in your career as a young professional, I think you have to carry that sense of being footloose and be ready to embrace opportunities, irrespective of where they come from, even though they may be in the Middle East, or they may be farther away. Buying a home will not allow you to be as mobile as if you were to be renting.

My advice would be, unless there's a very good reason for you to buy, I would say rent in earlier, figure out what your career would look like in the first few years, and once you have a good job and you know that you will be there for 5, 10 years, then buy.

Nadine Habib:

What type of advice would you give to students who eventually want to become homeowners in the city? Is there anything in addition that you would like to add?

Murtaza Heider:

So, yeah. I think from a young person's perspective, you have to look at the lifestyle changes that will happen. So initially, you move out of your parents' house, or you were already out and now you've started working. You are single, and then you meet someone, and now you're a couple, and then that couple eventually ... The family grows and you have a child.

So, all these three stages, or all life stages, result in different shelter requirements. Everything changes the moment there's a child in the family, so you start thinking about buying in terms of, not just owning a house. If you are just a couple then, yes, you can buy and rent wherever you believe will have the best trade-off between commuting to work, and having a good social life, and having a night life as well.

But the moment there's a child in the plan, let say it happens in five years, then start thinking in terms of daycare, in terms of kindergartens. Then five years down the road, good schools. I think for young millennials, in planning your life and careers, you should start thinking also about where the good schools are, not just in Toronto, but also in Vancouver and Montreal. And see where the career opportunities are, and then see if your career would take you to a place where you can grow and raise a family in a very good school district.

Now, [inaudible] a very young person will say, "Well, I'm single. Why is he telling us about raising families?" But that happens, and that happens faster in your life than you think it would. So basically, at this stage, rent if you can and then plan a life and a lifestyle and a housing choice, knowing that your life will change dramatically as you grow older, mature, and your household composition, your family composition changes.

Nadine Habib:

You're also working on some new research about accessibility and transportation in Toronto. Can you tell us a little bit about that research?

Murtaza Heider:

A lot of our work is understanding the dynamics and the way the city grows, and how transportation becomes an enabler for the city to grow. So, we are looking at the structure, not just the demographic footprint of the city, but we are also looking at the labor market. Where people work is something that has not been researched as extensively as where people live has been.

We are just trying to determine how far can one get from downtown in Toronto and in Montreal and in Vancouver and in Calgary, and how far can you get and still find ... What is the labor shed, or in terms of commuting, how far can you live and still be able to commute to downtown in your respective city within a 30 minute commute? Or if you live in central city, or in downtown, how far can you commute within 30 minutes, or 45 minutes, or an hour and be able to get to a work location?

This spatial distribution of employment and accessibility to employment is the kind of research we are doing right now, in trying to determine the relative size of cities, not from a population perspective, but from an employment perspective. It's the accessibility to employment locations that is the main area of research that we are pursuing at our institute, which is the Open Analytics Institute.

Nadine Habib:

Are you able to share some of your findings from that research?

Murtaza Heider:

It's a little bit preliminary, but not as much, but we have found that cities do differ significantly in terms of how far can you get and still be able to commute back to downtown. We found that, actually, and we are looking at not just ... We are at this stage looking only for automobile commuting, and we have found that the presence of freeways and highways help expand the employment footprint of a city. In the absence of freeways, the cities would be much smaller and the employment for people would be much smaller.

Nadine Habib:

Interesting. How does that impact affordability?

Murtaza Heider:

Affordability is a key thing that if you think about planned, efficient public transit systems, such as the one we call the GO transit in Ontario. It allows individuals to be able to commute to downtown using public transit in a more efficient way than, let's say, driving. Imagine you live in Oakville, right? Or Mississauga, or Oshawa. The GO trains allow you to be in downtown in 45 minutes, which is not possible during rush hours if you were to drive.

What happens is that through these transit systems, one is able to extend the physical boundaries of the city, so you can still live in Oshawa and be able to work in Toronto. So, affordability automatically improves, because when the physical boundaries and physical space of a city has grown, more area becomes developable. And if the supply of housing increases, the price of the housing goes down, or at least the affordability improves.

So, the reason Toronto is not super-expensive is because you can have a large number of people still live outside of Toronto, be able to commute back, and when they live outside of Toronto their housing costs are much lower than had they lived in downtown Toronto or central parts of Toronto.

Nadine Habib:

Finally, students voted "yes" to the RU pass, which means all students, even those who live near campus, are now going to have to pay for their TTC pass in their tuition. Can I just get your thoughts on what you think about that decision?

Murtaza Heider:

I think campuses are different in the way that the student body is sometimes more of a commuter body, which is more living on campus. Ryerson is more of a commuter campus. Most students arrive daily, I think, and I'm speaking naively, rather. But my assumption is that a smaller cohort of students live either in the university residence or in private accommodations around the university.

The reason this pass has passed, because I think the majority voted in favor. But it creates an interesting question about equity, that someone who lives on campus and they made the decision to rent and be here so they don't have to commute, will also have to be paying or contributing towards this pass because it's not individual or user-fee. It's a collective thing that is imposed on all.

So it has this concern about equity, and I don't know how to resolve it. But I'm glad that the students have voted and acted in a democratic fashion. At the same time, how do we create equity in the sense that those who have to pay for a service that they will not use are compensated in a different way?

Nadine Habib:

Thank you so much for joining us, Murtaza. I appreciate it.

Murtaza Heider:

Thank you for inviting me.

Nadine Habib:

Like Nobody's Business is a presentation of Toronto Metropolitan University's Ted Rogers School of Management. For more information about TRSM, visit ryerson.ca/tedrogersschool. Thank you for listening.