Millennials looking to get into Canada’s hot housing market don’t just have to pay more than their grandparents did, they’re having to work twice as long too.
New research from the Broadbent Institute in Ottawa on Thursday measured prices in terms of how many weeks of work are required to pay for it.
Marc Lavoie, a researcher with Broadbent Institute, found it took just over 200 weeks of work to buy the average Canadian home in 1970. That’s shot up to more than 400 weeks’ pay in 2015.
He said there are several reasons behind the dramatic rise.
“It’s much easier to get credit for mortgages now than it used to be, and the amount that can be obtained is much larger,” said Lavoie, who’s also an economics professor at the University of Ottawa. “Wages have not risen at the same speed as labour productivity. If wages don’t grow as fast as they should, then the cost of houses in terms of wage rates is going to rise as well.”
The study, based on average weekly earnings numbers from Statistics Canada, showed the average home price equating to 200 weeks of work remained the same from 1970 until 1986 when real estate prices began to soar.
The Bank of Canada stepped in and hiked short-term interest rates in the early 1980s to curb inflation which sent Canada into a recession. Prices peaked in 1989 and fell in some markets – like Toronto and Vancouver – by as much as 25 per cent.
Lavoie said prices didn’t regain their 1989 peak until 2006.
“Young Canadians who wish to own their dwelling are much worse off than were their parents when they bought their house in the 1970s or during the first half of the 1980s,” the report said.
The skyrocketing prices of homes is a huge issue in Canada, especially in red-hot housing markets like Toronto and Vancouver.
New numbers from the Toronto Real Estate Board show housing prices jumped more than $100,000 in just one year. The average sale price for homes in the Greater Toronto Area last month was $739,082. The average was $636,094 in April 2015.
More broadly, the average home price in Canada rose from $439,477 in March 2015 to $508,567 in March 2016, according to the Canadian Real Estate Association.
“It gives a boost to the construction industry as long as they can find enough people to buy them,” he said. “But here’s a negative effect on the rest of the economy because people cannot spend as much on other commodities.”
Lavoie acknowledges that the homes being purchased have changed over time, and could lead to a price increase. For example, the average Canadian home in 1975 was 1,075 square feet and by 2013 that number had nearly doubled to 2,000 square feet .
However, he says the affordability challenge has grown for a nearly a decade.
“Current and recent buyers need to devote many more weeks of labour time to the financing of their home than their predecessors,” Lavoie said in the report. “No wonder so many young prospective buyers, especially those in major cities, feel that owning a residential unit is more like a long-distance dream.”