However, I will confess I once purchased a drafty old house because my wife loved the eat-in kitchen and it was within walking distance of school (one of our children suffered from motion sickness.) And a friend of mine once bought a house because his wife fell in love with the front porch.
Many people fail to consider the long-term costs of a home purchase. They don’t engage in the same level of due diligence they will apply to the purchase of a car. Perhaps it’s because they expect a car to start losing value the minute they leave the lot, and there is a more visceral, psychological impact from, what are on occasion, sky-high gas prices.
On the other hand, many people think of the purchase of a home as the purchase of an asset that will appreciate in value over time. This is somewhat true. In a decent market, and in Canada’s large cities, a home’s resale value will enjoy a steady increase, or at least it has for most of the past 70 years.
However, what are your ownership costs? Utilities, maintenance and repair, property taxes and mortgage interest must all be taken into account. Much of that appreciation in value that’s realized when you sell isn’t new money in your pocket, it’s simply paying you back the 10s of thousands it cost you to own the place. This is money that was tied up for years and was providing no return.
Building quality and cost of ownership
It’s an issue of building quality. Before purchasing any property, you must consider the current state of repair, how well it was constructed, and at what point reinvestment will be required in the roof, the windows or any of the other major components that will fail over time.
If you don’t have to cover these costs, the next buyer will, and trying to sell and pass the problem to someone else may only serve to leave you with an undesirable asset that wise buyers will not touch.
Canada’s condo craze of the past decade is a prime example. Scores of glass towers have sprung up in cities across the country. People love the aesthetics of floor-to-ceiling windows, and have flocked to an urban lifestyle close to where they work.
I’ve always been a diehard advocate of keeping home and work close to cut urban gridlock and the impact on our transportation infrastructure. But hastily built glass towers are not the answer. Many of these structures are in fact towers of sand that will need massive reinvestment within 10 to 20 years of construction. A friend of mine just bought a new condo unit with a jet action toilet which occasionally sucks all the water out of the toilet bowl, and not quietly.
The downside of Canada’s condo craze
A few weeks back, the Globe and Mail featured a great interview with Lloyd Alter, an architect and adjunct professor at Ryerson University who teaches sustainable design.
He spoke of how most of these towers have been built with conventional double-paned windows filled with argon gas. The argon increases energy efficiency. But there is a limit to how much efficiency they can provide when an entire exterior wall is glass. These condo units heat up quickly in the summer, driving up air-conditioning costs, and cool off quickly in the winter, increasing heating costs.
Alter also warned that, in 15 years or so, the argon will have escaped and the gaskets around the windows will have begun to leak. These units will become increasingly uncomfortable to inhabit, and prohibitively expensive to heat and cool.
Now, Ontario is one jurisdiction that has stepped up with new Building Code requirements that limit an exterior wall to being no more than 40 per cent glass. But there are still a rash of projects to be built over the next few years that slipped in before the new law took effect.
The result is that condominium corporations, or individual unit owners, will have to beef up their reserve funds, or belly up to the renovation bar to pay for costly and time-consuming facelifts to these buildings. Who is going to foot these massive repair bills? The condo owners, of course.
That means now is the time to be doing a little more due diligence on your purchase of that downtown condo you have your heart set on. As appealing as those glass walls may be, unless they are built with something far more efficient (and costly) than typical argon, it will not be a comfortable or cost-effective home for the long term.
Instead, look for units that have more, well, actual walls. Ask about energy-efficiency and the longevity of the materials and products that are being used in construction.
Don’t be ruled by aesthetics
It’s too easy as consumers to judge a book, and a building, by its cover. Visual appeal and price too often become the determining factors in the decision to buy. But you can’t look at just the upfront cost. You must factor in the cost of ownership, the operating cost, year-to-year, for however long you intend to live there.
And it doesn’t necessarily cost significantly more to choose the better option. Builders know putting a premium on higher-efficiency and sustainability is a hard sell for many consumers.
Some builders have always taken the long-term, sustainable view, but, for the most part, the market has been, and remains, capital-driven. Most builders only strive to a higher standard when government legislation forces them to. For them, the endgame is always build fast, sell fast and get to the bank.
Even now, with new building standards in effect, consumers can’t just assume any new build undertaken within the next couple of years is up to snuff, because of those project approvals that slipped in under the door before the new Building Code requirements took effect.
As with any purchase, there is never any substitute for doing your homework, and thinking long-term.
To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.