When the pandemic started, real estate experts warned that home prices would decline due to recessionary pressures. Yet, after a brief downturn last spring, the market not only experienced a boom but this appears to be a lasting trend. The demand for cottage properties is growing for several reasons. One is that many Canadians are working remotely, and many information professionals choose to move to small towns and the countryside. Second is the fact that the border is closed except for essential travel. It is not clear when Canadians could board a plane, hence is the demand for cottage properties to have a vacation at home and within a commuting distance. Third is the fear of inflation and growing real estate prices as inflation has crept a little higher. But there is more driving prices up than remote working, closed borders, and inflationary fears.
Undersupply of Cottage Properties
There has been an undersupply of decent cottage properties in Ontario. The market imbalance is due to a combination of economic, demographic, and historical factors that created supply shortages even before the pandemic. Take Airbnb, for example. The concept behind it was to create a platform that is part of the sharing economy. Yet, the idea of renting out an extra room to make money on the side has proven attractive, and many choose to rent out, creating a shortage of properties for sale. The booming tech industry is also a contributing factor. The tech sector grew by over 50 percent by 2019, with more than 240,000 jobs in the GTA. Think of Shopify, Kik Messaging, Thelmic Labs, Google, Desire to Learn, Open Text, and many more to mention.
Labor shortages over the years resulted in construction delays. The reason for delays is not enough skilled labor. Additionally, the equipment required to build sewer systems and roads is expensive to maintain, run, and buy. Builders and local governments choose not to buy a lot of equipment because of the shortage of land to build on. There is also the demographic factor, with baby boomers moving to the countryside and not into condos in Toronto. Finally thanks to GO Transit’s commuter rail services, Toronto is now connected to the rest of the GTA. Many people choose to buy homes within a commuting distance to Toronto, thus contributing to an already existing housing shortage and growing demand.
Another reason for the shortage of supply is that cottage owners are less willing to sell compared to homeowners in Toronto. As Chestnut Park CEO Chris Kapches explains, the sale of cottages is typically discretionary “unlike sales in urban environments that are often driven by necessity”. The result is that cottage supply is further dwindling. Given the competitive market and low stock, real estate is now sold in about 23 days while in 2017 properties were sold in 132 days on average.
Because of the chronic undersupply of properties, the number of homebuyers looking to invest in cottage estate now exceeds the number of listings.
Work from Home
The pandemic has proven information knowledge professionals that they can work from anywhere where they have a stable Internet connection. With travel restrictions and social distancing protocols still in place, cottage life has become more desirable, and survey results prove this trend. A survey published by CTV News show that 47 percent of young people aged 25 – 35 would choose country or small town living. Close to 2/3 of Canadians aged 25 – 40 also say that they prefer to work remotely if given the option. A 2021 survey by Remax also shows that 57 percent of Canadians in Atlantic Canada prefer country living. Overall, 47 percent of Canadians across all age groups would like to live in the countryside.
The pandemic has caused a mindset shift that is likely to stay. The blurring of recreational property and primary residence is at least in part resulting from the blurring of home and work from home. Even occupations with the highest level of proximity have seen and are likely to see further transformation after the pandemic subsides. This is the case with frontline workers who interact with customers in post offices, financial institutions, and retail stores. Work has partly migrated to digital transactions and e-commerce to curb the further spread of the virus. The computer-based office work sector is largely teleworking. It includes office settings in factories, IT companies, courts, hospitals, and financial institutions. This sector accounts for about 30 percent of employment in advanced economies such as Canada’s. Virtual meetings and remote work have become the norm in administrative settings, and this trend is likely to continue.
In fact, data by Statista shows that 24.2 percent of Canadians would like to work most hours from home and 14.7 percent prefer remote work altogether. Additionally, 40.8 percent say they would like to work half of the hours outside and half at home. Only 9 percent of Canadians prefer to work outside the home. As the pandemic has proven employers that remote work can be as productive as working from the office, this shift is likely to be permanent, with many choosing country living.
Low Interest Rates
The demand for rural properties has led to bidding wars that real estate agents have rarely witnessed. Cottage prices are forecasted to grow by 17 percent in 2021 due to the buying frenzy since the onset of the coronavirus pandemic. In addition to remote work, demand for recreational properties is driven by historic low interest rates. The pandemic and following containment measures imposed across Canada have plunged the economy into severe contraction, causing widespread unemployment. Recessionary pressures also caused interest rates to drop to near historic lows. In response to the pandemic, the Bank of Canada cut the key rate three times in March 2020 alone. Depending on the situation buyers are in, low interest rates on mortgage loans could mean significant savings. Additionally, some homebuyers saved money because they haven’t been able to travel overseas.
Demographic Profile of Buyers
People looking to buy a recreational property are quite diverse when it comes to demographics and age. Some of the homebuyers are families that send their children to summer camps. As sending kids to camps is not an option and might not be for some time, they want to buy a recreational property in a similar setting. Others usually travel abroad during the summer months and are starting to realize that vacationing abroad might not happen as much over the next couple of years. Still others want to invest in a rural property to keep their families safe. There is also a group of people that are interested in buying a property and change their lifestyle.