In Canada, millennials are still buying houses, somehow

Some young Canadians celebrate their good fortune. (Okay, they were celebrating some hockey.) Image: Getty.

Both Toronto and Vancouver had frantic housing markets in 2017 — prices skyrocketed and many properties sold with bidding wars that pushed their prices high over the listing price.

The 15 per cent surtax on foreign investors was introduced in Vancouver initially and then later in Toronto to help cool the market. Despite the fact that foreign ownership of real estate is not particularly high, the market in both cities slowed markedly (if temporarily) after the imposition of the taxes while vendors and purchasers waited to see what their impact would be.

The new mortgage qualification guidelines introduced in January 2018 have had the effect of reducing the amount of mortgage debt borrowers qualify for, and has also had an impact on activity in the market.

Both these policies have had a dampening effect on the number of resale transactions. Sales were down 19 per cent in January and February but overall, showed a small increase in March.

There has also been considerable media attention about falling average house prices, especially in Toronto, but this is misleading. Average house prices can fall because the characteristic of the average house sold changes — for example, smaller houses are selling while larger, more expensive ones are not.

Home ownership remains a Canadian dream

Real estate registry data specialist Teranet and the National Bank of Canada have created a price index that tracks price changes in the same houses as they sell over time, which provides a more accurate reading of price changes.

The April 2018 index shows moderate price increases in Toronto since the beginning of the year (0.3 per cent) and a year-over-year increase of 1.89 per cent. Vancouver shows a year-to-date increase of 2.41 per cent, and a substantial year-over-year increase of 15.89 per cent.

Despite these statistics, Canadians are hanging onto the goal of owning a home.

A recent RBC survey found this motivation strongest among millennials, with 39 per cent expecting to buy within the next two years, compared to 25 per cent overall for the survey. Condominium sales in Toronto in the past year have been much stronger than sales of single family homes presumably because of this demographic.

Fifty-nine per cent of millennials have already achieved their dream of home ownership, according to a survey by mortgage insurer Genworth Canada released in early May 2018. This seems high given the Statistics Canada rate of home ownership in 2016 of 43.6 per cent for 20-34 year olds.

However, Genworth reports that of those milllenials who own, 30 per cent bought a home (not always a first home) within the last two years despite the extreme nature of markets. This compares to nine per cent of respondents over 34.

Millennials keep pace on home ownership

Given the national home ownership rate of 67.8 per cent according to the 2016 census, millennials are not far behind. Ownership rates in 2016 were 66.5 per cent in Toronto and 63.7 per cent in Vancouver. Given the large increase in house prices in these two cities, the difference in ownership rates may deviate further from the national average in the next census.

With similar results to the RBC survey, Genworth’s study found that another 30 per cent of millennials plan to buy in the next two years.

This begs the question: How have millennials been able to fulfil their home ownership goals, and how will they be able to do so in the future?

One way is that they’re saving money by living at home with their parents after completing post-secondary education. Overall in Canada, more than a third of those 20 to 34 live at home with at least one parent. (This percentage is comparable in the United States, Britain and Australia).

In Toronto, this ratio rises to 47.4 per cent; in Vancouver it’s 38.6 per cent. This is a low-cost way for parents to help their children save for a downpayment (although in some cases, the child is supporting the parent rather than vice versa).

Parents help with downpayment

The RBC survey also revealed that 35 per cent of millennials planning on buying in the next two years anticipate getting help with the downpayment from their parents.

Baby boomers have benefited from home price increases recently, and can borrow against the equity in their homes relatively cheaply on secured lines of credit.

But this raises a couple of concerns.

Boomers may be taking on this debt at a time when they are planning retirement and their income is declining, leading to financial pressure for the parents. As well, not all parents can raise capital in this way, and some aren’t willing to — leaving an equity gap between those who get help from their parents and those who don’t and may not be able to buy as a consequence.

Millennials are being creative in others ways to assist with affordability. Most in Toronto and Vancouver who live in rental accommodation have roommates. Some take one or more roommates with them as renters when they buy to help with mortgage payments. Others buy a property with rental potential — a duplex or a house with a basement apartment.


Does roommate face eviction?

While these tactics may allow millennials to enter the housing market, they have implications for the long term. What happens when the homeowner decides to have a child? Will the roommate be evicted, and if so, how will the mortgage and day-care costs be covered? Having children may be postponed or not be an option at all.

Eventually, millennials may choose to leave these very expensive cities.

This is already happening in Ontario as people buy in the Waterloo area or Hamilton and commute to Toronto. After a few years of tedious commuting, they may look for employment closer to home.

A lack of affordable home ownership options in Toronto and Vancouver may eventually make them less attractive as locations for businesses if their prospective employees cannot afford to live within a reasonable proximity to work.

This is a complicated issue with no easy solution but one that needs continued attention —it has broader implications than just the fact that some millennials may not be able to buy homes.

Jane Londerville, Associate Professor of Real Estate, University of Guelph.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

The Tory manifesto promises to both increase AND decrease the rate of housebuilding

Housing secretary Robert Jenrick. Image: Getty.

In his 2014 Mansion House speech, the then-chancellor George Osborne expressed with uncharacteristic honesty the motives at the heart of how the Conservatives see British housing politics: “The British people want our homes to go up in value, but also remain affordable; and we want more homes built, just not next to us.”

Five years later these contradictions remain unreconciled and present in their manifesto, which contains two different and contradictory – but clearly extensively targeted and focus-grouped – sets of policies.

The Conservatives have two housing targets. The first is to make significant progress to hitting “our target of 300,000 houses built a year by the mid-2020s”. The second is their aim to build “at least a million new homes” during the next parliament, which implies a target of 200,000 homes a year. This is not only 100,000 lower than their initial target but also lower than the current rate of housebuilding: 213,660 new homes a year. They have therefore implied at separate points in the same manifesto that they intend to simultaneously increase and decrease the rate of housebuilding.  

There are similar conflicts in their approach to planning. They intend to make the “planning system simpler” while simultaneously aiming to introduce community-led design standards for development and planning obligations to provide infrastructure for the local community.

None of this is unsurprising, The Tories don’t seem to know if they want to build more houses or not – so of course they don’t know whether they wish to make it easier or harder to do so.  

Politicians like obfuscation on housing policy to placate NIMBY voters. Take for example prospective Conservative MP and ‘environmentalist’ Zac Goldsmith’s crusade to save treasured local car parks. The manifesto can equally be accused of pandering to NIMBY instincts, protecting their shire voters from all housing, including ones they might actually need or want, by promising to protect the greenbelt.  

Instead, Conservatives intend to foist development on Labour-leaning inner-city communities and prioritising brownfield development and “urban regeneration”. This requires massive, infeasible increases in proposed density on brownfield sites – and research by Shelter has shown there are simply not enough brownfield sites in cities like London. Consequently, it is not clear how such a policy can co-exist with giving these inner-city communities rights on local design. Perhaps they intend to square that circle through wholesale adoption of YIMBY proposals to let residents on each street opt to pick a design code and the right to turn their two-storey semi-detached suburban houses into a more walkable, prettier street of five-storey terraces or mansion blocks. If so, they have not spelt that out. 

Many complain of NIMBYism at a local level and its toxic effects on housing affordability. But NIMBYism at the national level – central government desire to restrict housebuilding to make house prices rise – is the unspoken elephant in the room. After all, 63 per cent of UK voters are homeowners and price rises caused by a housing shortage are hardly unpopular with them. 


There is anecdotal evidence that protecting or inflating the value of homeowners’ assets is central to Conservative strategy. When George Osborne was criticised for the inflation his help to buy policy caused within the housing market, he allegedly told the Cabinet: “Hopefully we will get a little housing boom, and everyone will be happy as property values go up”. More recently Luke Barratt of Inside Housing noted that most Conservatives he spoke to at the 2018 party conference were scared “they’d be punished by their traditional voters if the values of their homes were to fall”. He was told by a Conservative activist at the conference that, “If you build too many houses, you get a Labour government”.

But the senior figures in the Conservative Party are painfully aware that the continuing housing shortage presents major long-term problems for the Party. As the manifesto itself acknowledges: “For the UK to unleash its potential, young people need the security of knowing that homeownership is within their reach.” Perpetual increases in house prices are incompatible with this goal. The problem has greatly contributed to the Conservatives’ severe unpopularity with a younger generation priced out of decent accommodation. 

Equally, there is increasing evidence that ‘gains’ from rising house prices are disproportionately concentrated in the south of England.  The differences in housing costs between regions greatly reduce labour mobility, suppressing wage growth in the north and midlands, which in turn leads to greater regional inequality. The policy of coddling southern homeowners at the expense of the economic well-being of other regions is a major long-term stumbling block to Conservative desires to make inroads into the ‘red wall’ of Leave-voting labour seats outside the south.

Before dealing with the issue of where housing should go, you must decide whether you want to build enough housing to reduce the housing crisis. On this issue, the Conservative response is, “Perhaps”. In contrast, even though they may not know where to put the necessary housing, the Labour Party at least has a desire in the abstract to deal with the crisis, even if the will to fix it, in reality, remains to be seen. 

Ultimately the Conservative Party seems to want to pay lip service to the housing crisis without stopping the ever-upward march of prices, underpinned by a needless shortage. Osborne’s dilemma – that the will of much of his party’s voter base clashes with the need to provide adequate housing – remains at the heart of Conservative housing policy. The Conservatives continue to hesitate, which is of little comfort to those who suffer because of a needless and immoral housing shortage.

Sam Watling is the director of Brighton Yimby, a group which aims to solve Brighton’s housing crisis while maintaining the character of the Sussex countryside.