It may take millennials 29 years to save enough to afford a home in Canada's biggest cities
The Generation Squeeze report calls the affordability gap between baby boomers and their children an 'emergency'
A new report by Generation Squeeze, a non-profit group that advocates for young Canadians, suggests the affordability gap between baby boomers and their children is startling, noting that the average millennial has to save for eight years longer than their counterpart in 1976.
“It’s an emergency… these are critical levels,” Paul Kershaw, Ph.D, the founder of Generation Squeeze told the Financial Post.
“We’ve been sounding alarm bells in B.C. and across country. Affordability is a way bigger problem than we’ve been talking about.”
The report investigated the cost of living in each province and its largest cities assuming millennials save 15 per cent of their pre-tax earnings on housing — half of 30 per cent, the Canada Mortgage and Housing Corporation’s definition of affordability.
Across Canada, it takes 13 years of full-time work for the typical Canadian between age 25 to 34 to save for a 20 per cent down payment on an average priced home. In Metro B.C., it takes almost three decades to afford a home with 29 years worth of thriftiness, while saving for a spot in the Greater Toronto Area requires 21 years of painful penny-pinching.
For every per cent interest goes up, there’s roughly a $100,000 pullback on prices... but I don't see interest rates creeping up
John Skenderis, realtor at Century 21 Leading Edge Realty Inc.
“With interest rates being low and staying low, housing prices will stay high,” John Skenderis, a Toronto-based realtor at Century 21 Leading Edge Realty Inc., told the Financial Post. “For every per cent interest goes up, there’s roughly a $100,000 pullback on prices… but I don’t see interest rates creeping up.”
Skenderis says as a politically safe country attracting more immigrants, Canada’s home prices are expected to remain stable.
But Kershaw notes that stability is one of the key reasons he published the report.
“It’s not problem solved,” he said. “This is leaving a dramatic gap, not just in Toronto and Vancouver.”
Millennials in Ottawa and Quebec will need to guard their dollars for 10 and 11 years, respectively, while other spots in Ontario such as Hamilton now take 14 years of savings to acquire a home.
The East Coast had lower home prices as did Prairie provinces like Alberta, with their dependency on oil and unemployment haunting the real estate market of some of the largest cities.
The report finds average home prices across Canada would need to drop by $223,000, which is half of what they’re currently worth, to become affordable enough to sustain an 80 per cent mortgage. The report’s other solution is for standard full-time earnings to jump to $93,400 per year — double today’s average.
With millennials representing about seven per cent of the population, Kershaw says the soaring real estate prices helped baby boomers but now massive changes need to be made to support the next generation of Canadians.
“We recognize ‘now that my kid wants to move out, this really harms them,’” he said. “It’s an intergenerational moment that is changing class norms.”
The Canada Mortgage and Housing Corporation says the sky-high prices are also due to investor demand and income growth but it all boils down to one issue — Canada doesn’t have enough homes.
“We don’t have the rental market or supply out there for folks to live in,” Dana Senagama, a senior specialist and market analyst at CMHS told the Financial Post. “If you’re a first-time buyer you’re competing with investors that are going to buy the condo unit.”
It's an intergenerational moment that is changing class norms
Paul Kershaw, Ph.D, founder of Generation Squeeze
Kershaw says the report was published now in hopes of having candidates for the fall Federal election take the housing crisis seriously. He and his team list a number of recommendations including reducing other millennial expenses such as tuition, childcare and transit, helping renters make more money and a national housing strategy it says is long overdue with a focus on homes as a place to live rather than a “stock market.”
As for what millennials can do, Skenderis says their choices are simple.
“Millennials need to be realistic about what they can afford and should try to save as much money before going in and purchasing a home,” he said. “They should shoot for a 30 to 40 per cent down payment because it will save them money when paying off the home. If that means living at home for longer period of time with folks, they may have to suck it up.”
Article by Bobby Hristova
Original Article Here