Home Is Where The Heart Is...If You Can Afford It
Home is where the heart is. Or, it might not be what you own for a while - or perhaps ever - if you’re born after 1982 . The latest census data release highlights significant shifts in some key housing indicators over the last decade and touches on the implications these trends may have on the Canadian economy, such as the rise of renters versus home owners, the move to living in apartments versus single-detached homes, more young adults living with parents, and the growing share of households living in shelter that’s considered unaffordable.
Homeownership rates down
Over the period 1991 to 2011, the national homeownership rate rose by almost 7 percentage points. In contrast, the 2016 national homeownership rate (67.8%) dipped slightly from 2011 (69.0%). At the provincial level, homeownership rates have increased in the last decade in Quebec, remained relatively stable in the Prairies, and declined in Atlantic Canada, Ontario, and British Columbia.
Homeowners getting older
Homeownership is strongly linked to age. Prior to 2006, growth in national homeownership was largely driven by baby boomers (the generation born from 1946 to 1965). By 2016, three-quarters of baby boomers were owners in the Canadian housing market. Similarly, 70% of Gen Xers (born from 1966 to 1981) owned a home in 2016. But among millennials aged 20 to 34 years, barely 40% are owners.
Rise of different home-sharing arrangements
Homeownership rates have started to trend downward since 2011. This mainly reflects the escalating cost of urban housing and the ever-rising numbers of young people pursuing post-secondary education and – often – accumulating more debt in the process. The 2016 data highlights increased diversity in living situations, notably a greater propensity for Canadians to enter into home-sharing arrangements with roommates and a growing share of millennials – one-third of Canadians between 20 to 34 years old, to be exact – who are living under a parent’s roof.
Probability of owning a single-detached home at age 30 decreasing
Unlike their parents, millennials are not as likely to own a home by age 30. If they do happen to make it into the market, there is a generational difference in the types of homes being purchased. In 1981, over half (55.5%) of 30-year old boomers owned a home. Of this group, nearly half owned single-detached homes. Flash forward to 2016 and while half (50.2%) of 30-year-old millennials were also in the housing market, the type of home had downsized: 65% of millennial-owned homes last year were apartments. This speaks to two trends: urbanization, and the eye-watering cost of purchasing single-detached homes in some large urban centres.
A third of Metro Vancouver households live in unaffordable shelter
Statistics Canada sets the benchmark for “unaffordability” at shelter costs that take up 30% or more of average monthly household pre-tax income. Costs that go into the formula for calculating affordability include average monthly mortgage or rent payments, utilities, strata fees, property taxes, and other municipal services – such as garbage collection.
Looking at shelter costs compared to total income across Canadian metro areas, in 2016 Vancouver was ranked the second most unaffordable area in the country, behind Toronto.[1] Fully one-third of Metro Vancouver households spend 30% or more of their total income on housing-related costs. This reflects not just high housing costs, but also mediocre incomes. Many people in this situation find it harder to save for retirement. High housing costs also detract from a region’s ability to attract talent and, over time, can weigh on overall competitiveness.
Where to from here?
It’s not certain that urban housing markets across Canada will cool off anytime soon. As noted in The Economist, boomers may not be able to cash in on their housing assets if millennials are not able to afford them at current prices. The same is true if new immigrants are priced out of the market. With interest rates beginning to climb, pressure will continue to mount on homeownership and affordability in some parts of the country.
Future census data releases will shed more light on the extent to which younger generations will own or rent. With homeownership rates trending downward and Canada’s population becoming more urban, a shift towards urban apartment living and renting is likely. Policy-makers and community leaders should be looking at supply-side measures to streamline and incentivize the development of purpose-built rental housing stock and increase housing density in urban centres.
[1] It is important to note that this ranking was made with 2016 data and does not figure in the first three quarters of escalating Metro Vancouver home prices in 2017. According to Q3 RBC data, if the Census figures were to include 2017 incomes and housing prices, Metro Vancouver would rank as the least affordable city.