Leslie Young – Global News

Every day for the past few months, I’ve been reading the business sections of Canadian newspapers. And every couple of days, there is a new article about how unaffordable houses are, particularly for young Canadians.

It’s pretty depressing stuff. Enough to make me wonder – will I and other young Canadians ever be able to afford to buy a home? And if not, is renting a good option?

I asked a few experts to find out.

Comment: It is up to you and your budget, not the experts. If you had listened to the “experts” 10 years ago, you would not have bought, expecting there to be a crash any day. And you would not have bought a house that doubled in value, losing hundreds of thousands of dollars. Be very very careful listening to “experts”, access the data and check the math for yourself.

(Note that everyone I spoke to said that their comments really only apply to Vancouver, Toronto and in some cases Montreal and Calgary. Just about everywhere else, they say, millennials should have no problem buying a house or other kind of home provided they have steady employment.)

Comment: You should only be looking for information regarding the city where you live. Vancouver, Toronto, Montreal and Calgary are all WIDELY different places with very different situations.

Richard Harris – Professor, School of Geography and Earth Sciences at McMaster University

Can millennials expect to ever own a home in a big city? “A qualified yes, it is possible,” says Harris. “What people are doing of course, most obviously in Toronto, but also in other places – Hamilton too, is buying condos.”

Comment: I have young couples looking at buying houses, it isn’t that hard. Two people making $60k each can afford over $600,000.

But, he says, “This is not the future.”

“That’s not necessarily a long-term solution for them in terms of property ownership, because if you want to have two kids, a condo downtown is really not going to work for a variety of reasons.”

Comment: No, but it works to buy now and generate equity. Hold it for 5 years, pay down the mortgage, reap some price appreciation. Then take your larger down payment and put it towards a house.

One growing trend he sees making larger houses more affordable is the inclusion of basement units and other rental units, within the home. “You’re no longer just a homeowner, you’re also a landlord on that property,” he says, and as such, rental income could help with your mortgage.

Another thing that could make homes more affordable: a market crash.

Comment: Ain’t gonna happen. Just not in the cards. Basically impossible at this point, 100% improbable.

“Prices are out of line with incomes,” he says.

Comment: Moot point. Monthly income as compared to monthly housing costs are in line with multi-decade trends.

“The correction may be severe. It may be substantial. It won’t be like what happened in the United States in 2008, I’m sure of that, not in the foreseeable future, but it could be a non-trivial correction.”

Comment: It won’t. It isn’t going to happen. The US in 2008 is so far different from Canada in 2015 that it might as well be Mars.

While that will hurt people who just got into the market, it could be great news for people hoping to break in. For now, he suggests young people wait and see.

Comment: But all those people who want to break in, the 14 buyers that lose out on a 15-bid house fight, they all come jumping out of the woodwork when the prices magically fall. And guess what happens? They bid prices right back up again. If prices fall, fewer sellers will list their homes, further tightening supply. At the same time, more buyers will try to vie for these cheaper houses. So, arbitrarily low prices and lots of buyers, with short supply – wait, isn’t that what we have right now? And what is happening? Oh right, prices are rising and rising…

But what about the other option – remaining a renter for life?

While it might work for a single person or young couple, he says, once children are in the picture, things change. “Once you’re into raising a family, then of course, people are looking at more than just the unit, more than just the location in relation to work, but also all the other things – the facilities, the schools, et cetera that go with that.”

Comment: You can rent near schools.

Canadian cities have not built a lot of new rental properties since the 1970s, he says, and those that remain might not be in locations that have the best access to schools and other things which parents are interested in. Choosing to rent might limit your housing options.

Comment: That is changing a lot right now. Lots of new rental being built by institutions. Never mind all the privately-held rental options.

Tsur Somerville – Director of the UBC Centre for Urban Economics and Real Estate

Home ownership rates for young people have increased since 1991, says Somerville. According to the 2011 National Household Survey, 62.7% of people aged 25-34 across Canada owned their homes.

Comment: Indicating that buying must be a decent option.

“Home ownership is up, but I suspect a lot of those are condos,” he says. And unlike Harris, he does think that’s the future for millennials in large Canadian cities. “Many more of them will be in denser housing than was the case when they were growing up.”

And people who grew up in a house with a yard might not be particularly happy with a condo.

Comment: And they might not have a choice. I grew up a lot more downtown than I am now, but that is life. I live where I can afford to live.

All the same, he doesn’t see the supply of single family homes growing significantly in some cities, and as such, expects prices to stay high.

“You’ve got places like Vancouver, and Toronto will get to this point in not too long, where you really can’t build any more single family houses without letting us cut up single family lots, you can’t build more single family houses. So the number of single family houses stays the same and the population grows, so more and more people end up in townhouses or condos.”

Comment: Toronto is already at that point. Any new houses in the 416 are infills, replacing existing houses. New housing units are being built in the 905.

Somerville also doesn’t imagine that Canada will become a nation of renters.

Comment: Except that home ownership rates are rising, contradicting that opinion.

“That strikes me as a huge cultural change. It’s one thing to say that no, I want to keep travelling. It’s another thing if people have kids and have families, then all of a sudden, I don’t want to have to move out of here because someone decides they want to do something with this house. I want to be in this neighbourhood with these schools. I think that really kicks in more once you have kids.”

Comment: Which would then push more people to owning than renting, further contradicting his opinion about more renters.

According to one of his studies, renting doesn’t necessarily hurt someone financially though. “From a wealth perspective, renters could do as well as home owners, but they had to be very disciplined about saving the difference between their rent and what they would pay in mortgages and ownership costs,” he says. Home ownership isn’t a guaranteed path to future wealth, but neither is renting without careful saving.

Comment: And even so, whatever that difference might be, would they make the same investing it? Really, the question is – after 25 years, what would you spend and what assets/equity would you have if you rented vs. buying? Every time I have run the numbers, they actually come out pretty close. Provided the renter is strict about their investing. If that is the case, I would then buy, for the security. If the financial benefits are the same in the end, go with security every time.

Chris Buttigieg – Senior Manager, Wealth Planning Strategy, BMO

In early 2014, Buttigieg co-authored a study on millennials’ financial priorities. He found that they’re not that different from anyone else – home ownership, saving for their children’s education and saving for retirement were their top priorities.

“For Gen Y, they believed that they would achieve home ownership. They’re very positive about achieving that goal at some point in their lifetime,” he says.

But affordability is a problem. “Of course, what we have seen is that average house prices across the country have certainly increased or expanded or grown. Income, of course, hasn’t increased in the same trajectory.”

Comment: Same moot point everyone mentions.

Home ownership will be difficult but not impossible, he says. “I certainly see that it is something attainable but they have to keep it within their means. They can’t have that 3000 or 4000 square foot home immediately. They’re going to have to establish themselves, perhaps in the suburbs.”

Comment: Most people don’t want that massive home, to be honest. Suburbs or condos to start, then move up. Doesn’t everyone have to start somewhere? My parent’s first home wasn’t their dream home. Same with me. I am sure it won’t be too different for my kids either.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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