Notes on our evolving student real estate market.

I received the following note on a blog post I wrote 4 reasons not to invest in student properties. 

Mike makes some good points that need to be discussed.

Hi Keith!
Some bad information. Don’t believe everything you read. Instead,
search for properties for sale within 1 KM of WLU or UW – and see how many are vacant.
If you were scared off of the “glut” or the “Armageddon” of student
housing you would have missed two years of positive cash flow and
continued appreciation. Instead, look to the CMHC Fall Housing report
that looks at vacancy in The City. Student condos are not captured in this analysis. But what happens is that tenants tend to move to newer
opportunities. If there was vacancy, you would see it in the CMHC fall
rental market first.
Here’s a good article about Northdale. It was published the day after the
student housing Armageddon story: https://kitchener.ctvnews.ca/census-2016-which-local-cities-and-neighbourhoods-grew-the-most-1.3276525
With population increasing 147 percent in the neighbourhood around
the universities, that is the reason why you don’t see vacancy.

Hello Mike

Thanks for your comment. I disagree with much of what you say. Allow me to retort.

Glut or no glut?

I went ahead and did a search for condos in the university district and found that we currently have 39 listed on our local MLS. They make up a total of more than 22% of condos currently listed for sale in Kitchener-Waterloo. More than 22% of all condos currently for sale are within 1 KM of WLU or UW! Investors certainly have many to choose from.

Vacancy concession

Thought we do not have statistics on the vacancy rates of purpose built student accommodations, I do concede your point that the vacancy rates are likely pretty low. When I’m showing student units to potential investors, I am also impressed with how well managed and how much improved these units are compared to the bad old days of “student ghetto” houses and absentee landlords. I think the city did a good job of turning things around for the benefit of both Waterloo’s permanent residents and for our student population.

Cash flow positive student residences

I also agree that the units have remained cashflow positive although when I wrote the blog post back in 2015, the numbers looked dubious. It is hard to make predictions, especially in regard to the future. Perhaps because the developers have managed to keep the rental rates artificially inflated by controlling the bulk of the market, or maybe because the general value of our local real estate rose so quickly and rents always follow real estate price appreciation, the cashflow has stayed high.

And the rest

Regarding your link, I suggest you take your own advice and don’t believe everything you read. Northdale’s population surely grew at 147 per cent. How wouldn’t it when bungalows are being replaced with condo towers? 

Finally, because I would like to end up on a positive note I have two things to add. 

1) The future is hard to predict but hindsight is 20/20. One thing the reporting from 2015 did not consider (in terms of the coming glut in student housing) is that much of the then current student housing market, further from the university shifted back into the residential market, in my uptown neighbourhood especially. Where once were student houses, now are family houses again.

2) My overall opinion of investing in student accommodations has improved considerably. I give full credit to the developers, the early investors and the city planners for their successes. As a long time investor, I (currently) see purpose-built student units as a good investment vehicle.

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