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How 4 millennial co-owners got into Canada’s least affordable housing market

Click to play video: 'How 2 millennial couples share ownership of $2-million house in Toronto' How 2 millennial couples share ownership of $2-million house in Toronto
WATCH: Four millennials have managed to co-own a 3,000-square-foot, three-storey semi-detached duplex west of Toronto’s downtown core. Though each one of the homeowners makes more than the average income in Toronto, what they could afford to purchase as individual couples was less than what they found they qualified for by pooling their resources. Anne Gaviola has more on how the two couples afforded the house – Mar 30, 2022

From the outside, the three-storey semi-detached duplex west of Toronto’s downtown core doesn’t stand out as being unique. But when you set foot inside its 3,000 square feet, you’re greeted by what are, essentially, two dwellings under one roof.

And if you were to look at the mortgage arrangement for this nearly $2 million house, you would see the names of four millennial co-owners, which isn’t typical.

Michael Carlson, 36, who is a teacher and financial planner, says it’s the home he dreamed of but wasn’t sure he could ever own.

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“This house is magical. When you look at the bones, they’re perfect. The yard is incredible. It’s an oasis in the city and we are so close to transit that we really don’t need a car,” he tells Global News in an interview.

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Carlson had been championing co-ownership for about a decade before he finally took the plunge in March 2021. He and his partner Heather Nelson, 39, decided to sign on the dotted line with another couple, Craig Ruttan, 33, and his partner Alex Rand, 30, because they were interested in co-owning and cohabitating in one house.

The co-owners say they knew right away that this was the house for them. (l-r: Craig Ruttan, Alex Rand, Michael Carlson, Heather Nelson). Photo supplied

“As soon as COVID hit, I began to feel an immense amount of isolation,” says Nelson.

Two months into the pandemic, she told Carlson it was time to turn their “co-housing dream” into reality.

These Canadians are part of a growing trend, most noticeable in the country’s expensive urban centres, of co-ownership to break into increasingly unaffordable housing markets.

How they did it

When the pandemic hit, both couples were renting apartments in downtown Toronto. For Nelson, working from home in such small quarters with no green space, coupled with an increasing sense of isolation, turned out to be the proverbial straw that broke the camel’s back.

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“I’m kind of grateful for that because it expedited what we wanted to do,” says Nelson.

Carlson sent emails to dozens of his friends to find out who was interested in co-owning a house. Of the responses he received, he narrowed it down to candidates with a sizeable down payment and values that aligned with his.

Financial stability was also a factor as all four residents have been fortunate to remain employed throughout the pandemic.

Strength in numbers

Though each one of the homeowners makes more than the average income in Toronto — their annual pay ranges from $60,000 to $120,000 — what they could afford to purchase as individual couples was less than what they found qualified for by pooling their resources.

Carlson says that in Toronto, the market for homes priced between $1 and $1.5 million is “incredibly saturated” and competing with dozens of bids is the norm. With their combined incomes and bigger down payment, they were able to look at a higher price point, where bidding wars were less common.

“There’s just much less competition. No bully offers before people have even seen it. The market’s a little calmer at that higher level,” he says.

In March 2021, they found and purchased their semi-detached home for just under $2 million. Their 25-year mortgage with TD Bank was secured with a five-year variable-rate term on more than $1.5 million after each couple contributed $200,000 for a total down payment of $400,000.

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Ruttan, Rand, Nelson and Carlson enjoy a meal together in the backyard of the house they purchased together. Photo supplied

Monthly mortgage payments work out to $1,500 per person, which is comparable to what they paid to rent. But this arrangement allows them to build equity, and a sense of community within their own dwelling was equally important to all four homeowners.

“Knowing we could pool our resources and get something more appealing, particularly the community aspect was a really big driving force for us,” says Ruttan.

Runaway home prices

According to recent research by Mortgage Professionals Canada, Ontario has the highest ratio of home prices to average resident’s disposable income at 22.5 times. For comparison, a typical home in New Brunswick can be purchased with 7.5 times the average income.

Average home prices in Canada climbed 20.6 per cent year over year in February, according to the Canadian Real Estate Association’s (CREA) latest statistics, while income inflation has not kept pace. In fact, National Bank’s calculations show that housing affordability, as measured by Canadians’ ability to pay down their mortgages, deteriorated every quarter of 2021 in major cities across the country.

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Read more: Some Canadians struggle to enter housing market as costs rise — ‘Nothing we can do’

Tracking co-ownership across Canada is difficult because national and provincial agencies don’t keep tabs on this specific type of homeownership data.

When asked for a breakdown, both the Canada Mortgage Housing Corporation (CMHC) and Statistics Canada referred Global News to a 2018 national housing survey released last year that shows B.C. has the largest number of co-owners, meaning three or more buyers, compared with Nova Scotia and New Brunswick.

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Millennial homeownership lags rates of previous generations and that gap is most stark in Toronto. According to Borrowell analysis, Toronto millennials are the least likely to be able to afford the purchase of a home.

There’s anecdotal evidence that during the pandemic, as home prices across the country climbed 50 per cent, demand for these types of arrangements is rising.

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Toronto-based Ourboro specializes in co-ownership agreements and says it has seen a dramatic increase in interest in co-owning. Ourboro helps prospective buyers with cash for a down payment in exchange for an equity stake in the home.

Ourboro chief product officer Alex Kjorven tells Global News the number of applicants during the first quarter of this year is “up nearly 400 per cent” compared with the last quarter of 2021.

“People are urgently trying to get into the market thinking that interest rates are rising,” she says.

“Millennials and others looking to get into the market who thought of themselves as priced out feel like, ‘Where has this been all my life?’”

Making it work

This month marks the co-owners’ one-year anniversary since purchasing the duplex and they credit several factors for their success.

Finding the right people to embark on this journey with was key, as was being clear about what they wanted in a home and in their co-ownership relationship.

Formal meetings to discuss house matters happen once a month while day-to-day issues can be raised at weekly dinner get-togethers.

Conflict resolution processes are important, as are conversations to nip problems in the bud as well as deal with issues as they arise. Matters that aren’t resolved through discussion are voted on and discussed further.

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This came into play in January, when their boiler broke down, leaving them without heat in the dead of winter. Luckily, they had set up an emergency fund for these types of repairs.

Ruttan says that’s when the group discovered that Carlson was the house’s de facto “general manager” as he took the lead on getting the boiler chip fixed. It was challenging to figure that out at the time because Ruttan and Rand were limiting contact with others and being “extra cautious” during the peak of the Omicron wave, so they had to figure it out without any face-to-face conversations.

They say that although it wasn’t pleasant, it served as a reminder that when it comes to maintaining a home and trouble-shooting, four minds are better than one. Overall, Ruttan and the other co-owners say it has been pretty “smooth sailing.”

Contingency planning is key and they’ve drafted working documents, legal agreements and spreadsheets to clearly set expectations, including what happens if one or more parties decide they want to move and sell the house. In this case, they agreed that whoever triggers a sale has to pay all costs associated with selling the house, which amounts to tens of thousands of dollars.

There is also a one-year period before a sale can go ahead, to allow for a change of heart or let the others find new co-owners.

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“There are ways to build these things into legal agreements that don’t hold their feet to the fire but encourage people to work co-operatively and come together in good ways,” says Carlson.

He believes they would have “no problem” finding other interested parties if they decided to part ways because of the number of inquiries he’s fielding about their arrangement.

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This process has been an eye-opener for Rand, who says that before making this move, co-ownership wasn’t really on his radar. But, based on his experience, he says he has no qualms about recommending it to anyone who is on the fence about it.

“The appeal of being able to have community and bubble with people you know and love and have more space to do that in is really powerful and profound,” says Rand.

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