Every day for the past few months, I’ve been reading the business sections of Canadian newspapers. And every couple of days, there is a new article about how unaffordable houses are, particularly for young Canadians.
It’s pretty depressing stuff. Enough to make me wonder – will I and other young Canadians ever be able to afford to buy a home? And if not, is renting a good option?
I asked a few experts to find out.
(Note that everyone I spoke to said that their comments really only apply to Vancouver, Toronto and in some cases Montreal and Calgary. Just about everywhere else, they say, millennials should have no problem buying a house or other kind of home provided they have steady employment.)
Richard Harris – Professor, School of Geography and Earth Sciences at McMaster University
Can millennials expect to ever own a home in a big city? “A qualified yes, it is possible,” says Harris. “What people are doing of course, most obviously in Toronto, but also in other places – Hamilton too, is buying condos.”
But, he says, “This is not the future.”
“That’s not necessarily a long-term solution for them in terms of property ownership, because if you want to have two kids, a condo downtown is really not going to work for a variety of reasons.”
One growing trend he sees making larger houses more affordable is the inclusion of basement units and other rental units, within the home. “You’re no longer just a homeowner, you’re also a landlord on that property,” he says, and as such, rental income could help with your mortgage.
Another thing that could make homes more affordable: a market crash.
“Prices are out of line with incomes,” he says.
“At a certain point, I can’t help but feel there’s going to be a crash.”
“The correction may be severe. It may be substantial. It won’t be like what happened in the United States in 2008, I’m sure of that, not in the foreseeable future, but it could be a non-trivial correction.”
While that will hurt people who just got into the market, it could be great news for people hoping to break in. For now, he suggests young people wait and see.
But what about the other option – remaining a renter for life?
While it might work for a single person or young couple, he says, once children are in the picture, things change. “Once you’re into raising a family, then of course, people are looking at more than just the unit, more than just the location in relation to work, but also all the other things – the facilities, the schools, et cetera that go with that.”
Canadian cities have not built a lot of new rental properties since the 1970s, he says, and those that remain might not be in locations that have the best access to schools and other things which parents are interested in. Choosing to rent might limit your housing options.
Tsur Somerville – Director of the UBC Centre for Urban Economics and Real Estate
Home ownership rates for young people have increased since 1991, says Somerville. According to the 2011 National Household Survey, 62.7 per cent of people aged 25-34 across Canada owned their homes.
Source: Statistics Canada data, compiled by Tsur Somerville – On mobile? View the chart in a separate window.
“Home ownership is up, but I suspect a lot of those are condos,” he says. And unlike Harris, he does think that’s the future for millennials in large Canadian cities. “Many more of them will be in denser housing than was the case when they were growing up.”
And people who grew up in a house with a yard might not be particularly happy with a condo.
“I don’t think the Great Canadian Dream is ‘I want to live on the 27th floor of a tower in downtown Edmonton.’”
All the same, he doesn’t see the supply of single family homes growing significantly in some cities, and as such, expects prices to stay high.
“You’ve got places like Vancouver, and Toronto will get to this point in not too long, where you really can’t build any more single family houses without letting us cut up single family lots, you can’t build more single family houses. So the number of single family houses stays the same and the population grows, so more and more people end up in townhouses or condos.”
Somerville also doesn’t imagine that Canada will become a nation of renters.
“That strikes me as a huge cultural change. It’s one thing to say that no, I want to keep travelling. It’s another thing if people have kids and have families, then all of a sudden, I don’t want to have to move out of here because someone decides they want to do something with this house. I want to be in this neighbourhood with these schools. I think that really kicks in more once you have kids.”
According to one of his studies, renting doesn’t necessarily hurt someone financially though. “From a wealth perspective, renters could do as well as home owners, but they had to be very disciplined about saving the difference between their rent and what they would pay in mortgages and ownership costs,” he says. Home ownership isn’t a guaranteed path to future wealth, but neither is renting without careful saving.
Chris Buttigieg – Senior Manager, Wealth Planning Strategy, BMO
In early 2014, Buttigieg co-authored a study on millennials’ financial priorities. He found that they’re not that different from anyone else – home ownership, saving for their children’s education and saving for retirement were their top priorities.
“For Gen Y, they believed that they would achieve home ownership. They’re very positive about achieving that goal at some point in their lifetime,” he says.
But affordability is a problem. “Of course, what we have seen is that average house prices across the country have certainly increased or expanded or grown. Income, of course, hasn’t increased in the same trajectory.”
Home ownership will be difficult but not impossible, he says. “I certainly see that it is something attainable but they have to keep it within their means. They can’t have that 3000 or 4000 square foot home immediately. They’re going to have to establish themselves, perhaps in the suburbs.”
With files from Jamie Sturgeon