In the first post in this series I examined historical unit mix data to see what mix of purpose-built rental units have been built over the past few decades. My analysis found that since the year 2000 in twenty of Ontario’s largest cities developers have constructed far more 2 bed units than they did before 2000, while at the same time significantly lowering the number of studio and 3 bed units constructed. In this post, the second in this series, I ask the question do these historical unit mix trends make sense as a guide for developers choosing unit mixes for new rentals?
Broadly speaking, I think it makes sense for developers to construct more 1 bed apartments in urban areas and more 2 beds in suburban and exurban areas. In urban areas, where construction costs are higher and hence rents are higher, and where greater numbers of single people are usually found, it’s natural that 1 beds are often more popular. Conversely, in suburban and exurban areas, where construction costs and rents are typically lower, 2 beds are often more popular.
However, readers need to understand that there is so much unmet, latent demand for rental housing in most areas of southern Ontario’s cities that almost any unit mix, no matter how it is weighted, would be successfully absorbed anywhere. For example, in Toronto a developer could built a tower of all studio units or all 1 beds and as long as rents were not too high all those units would be absorbed; similarly, a tower with all 2 beds or 3 beds, if reasonably priced, would also be absorbed; this is the effect of low supply and high demand. But buildings with extreme unit mixes are vulnerable to future shifts in demographics, incomes, social preferences, and housing tastes, so it makes sense to choose a unit mix which is more ‘mainstream,’ which means a mix dominated by 1 beds and 2 beds, weighted slightly to one or the other depending on location (as discussed above). A mainstream or balanced unit mix of mostly 1 and 2 bed units has the greatest flexibility and will never be obsolete or unwanted since 1 and 2 bed units are the most suitable units for the largest amount of renters (unlike a building which is all studios, for instance, which is too specialized to be guaranteed to have long-term market relevance).
One and 2 bed units will always be the mainstays of new rental housing properties, but what about other unit types such as studios and 3 beds?
- Studios: I don’t think it makes sense to include studios in new rental buildings since studios are less popular and less usable than small 1 beds. These days enough design and layout options exist, such as sliding walls and foldaway beds, to give small 1 beds more flexibility and appeal than studios.
- 3 Beds: These are family-sized units and make the most sense when built as rental townhouses, either traditional vertical designs with private backyards, or stacked (basically two-storey apartments with separate entrances). Although there are plenty of families who would be happy to rental 3 bed apartments, most developers will find that most families can’t afford the very high rents that need to be achieved to justify their inclusion in a new construction project, especially in urban areas. After all, one 3 bed unit takes up roughly the same space as a pair of 1 bed units and would therefore need to achieve rents equivalent to the combined rents of the two 1 beds. (It should be noted that the city of Toronto sometimes requires developers to include 3 beds in apartment buildings, so developers may not always have a choice. But where they have a choice, most developers avoid 3 beds.)
- Dens: For the most part, I think adding dens to units is kind of pointless, since most dens are little more than alcoves or tiny rooms fit for little more than storage. In other words, in most cases they’re just a marketing ‘spin’ to explain surplus square footage generated unintentionally for architectural reasons. Instead of trying to sell a small alcove as a ‘computer nook,’ why not deliberately design small home ‘offices’ or en-suite storage rooms with doors? Those would be attractive to a lot of prospective renters and could be marketed openly and honestly, not only adding to the variety of unit layouts/configurations but also adding to the range of price points.