Someone needs to level with young adults hoping big city houses can be made affordable again.
These millennials and members of Gen Z are looking to government to cool the housing market and they’re starting petitions and letter-writing campaigns to advance their cause. Unfortunately, it’s too late for a lot of young adults. Even a sharp pullback in prices won’t bring us back to the days when owning a detached home in a big city was a reasonable middle-class goal.
So let’s move on. Not by giving up on the idea of young adults owning real estate, but by acknowledging that the era of widely accessible home ownership is done in some big cities. Without rich parents or high-earning jobs, first-time buyers will have to consider the suburbs, the exurbs and smaller communities beyond. Families that want the urban vibe will look at condos and townhouses.
We’ve already had a rush of young buyers exiting big cities in the pandemic to get more living space in a detached home and take advantage of the new acceptance of working remotely. A return to normal life would restore the appeal of urban living and probably limit the willingness of employers to have employees working at home.
But while the pandemic-focused appeal of living outside the city will fade to some extent, the economic case only gets stronger. House prices in small cities and towns are soaring, but they remain well below places such as Vancouver, Toronto, Hamilton and Ottawa.
Lots of choices are available to governments that want to help address the affordability problem by containing price increases. The minimum down payment for houses costing above a certain threshold could be increased. The federal Home Buyers’ Plan, where first-time buyers withdraw up to $35,000 from their registered retirement savings plan, could be closed. To limit the speculative aspect of home buying, the capital gains tax exemption on principal residences could be offered in a more limited form or outright shelved.
The federal government has to be cautious in handling the housing market right now because it’s a vital source of economic strength. But let’s say measures are introduced that shock the market and send prices well down from current levels.
The average detached resale house price in Toronto and Vancouver in February was $1.4-million and $1.6-million, respectively. Chop either of those prices back by 25 per cent and we’re still above the $1-million threshold where the minimum down payment is 20 per cent, or $200,000. For some young adults, saving this much money is harder than making their monthly mortgage payments.
Recent personal finance columns on housing have generated a lot of comment from people who want action taken to improve housing affordability. This same sentiment has caused a housing data website called The Habistat to create an online petition urging politicians to publicly recognize what is described as this country’s affordability crisis. In the Canada Housing community of online forum Reddit, a letter-writing campaign is being promoted to force politicians to recognize the housing crisis.
Expect housing affordability to be a major issue in the next federal election, and in votes at the provincial and municipal level. If pleas for help with affordability don’t resonate, the federal government may choose to act on purely economic considerations. Households buying in pricey markets are at risk of taking on mortgage debt that crowds out their ability to save for the future and deliver the household spending the economy needs to recover from the pandemic.
Whatever government does, it’s unlikely to bring a sweeping improvement in housing affordability. Who knows how much higher prices will rise before the measures take effect? Also, some measures could actually make it tougher in the near term for young adults to qualify for mortgages.
It’s time to get real about young adults and ownership of detached homes in big cities. The housing boom that makes ownership so attractive to this demographic has priced a lot of them out of markets like Vancouver and Toronto. There’s no going back to the days when houses in these cities were a place to live as opposed to an investment, and you chose between suburbs and city based on yard size and the number of bedrooms and bathrooms.
Stay informed about your money. We have a newsletter from personal finance columnist Rob Carrick. Sign up today.