According to a new study by Vancity, if housing prices continue to rise without intervention, the average detached home will cost $2.1 million by 2030. Because incomes will not be rising along with the price of living, it will take more than 100 per cent of median household income to put a roof over your head.
Downsizing the Canadian Dream: Homeownership Realities for Millennials and Beyond, published by Vancity, highlights the harsh realities that will face millennials and other home-buyers in the next few decades. In short, it seems the Canadian dream of owning property is no longer.
“Western Canada was settled on the dream of property ownership. Enterprising European immigrants were told that for the mere cost of showing up and their effort to cultivate the land, they could have something the old world could never offer: a piece of land to call their own.”
“In post-war years, this dream of home ownership came to be redefined to mean a bungalow and white picket fence. The sale of urban and suburban lots skyrocketed as families left inner city life for the quiet and controlled environment of residential neighbourhoods. For two generations, the single detached home has represented the focal point of the Canadian Dream.”
But Vancity now projects that owning a property will cost 108 per cent of average household’s monthly income in 2030, up from 48 per cent today. In contrast, Canada Mortgage and Housing Corporation (CMHC) states that housing costs should not exceed 32 per cent of a homeowner’s gross monthly income.
In keeping with CMHC numbers, the most expensive home someone with the median gross income per month of $6,225 would be able to buy appears to be $492,667.
“Assuming a five-year fixed rate mortgage of 2.89%, the most expensive home the purchaser can buy appears to be $492,667, but that is only if they can manage to accumulate a whopping $123,167 as a down payment (25% of the purchase price).”
Vancity points out that these numbers are the reason why so many millennials are aiming to invest in the condo market. But if they are hoping their “starter homes” will ultimately lead them to be able to afford a detached home in the future, their dreams may be out of reach.
According to Vancity numbers, the condo market has only increased in cost by 43 per cent since 2005 while the average property has increased by 126 per cent. In short, millennials are being pushed out of Metro Vancouver’s housing market, not just in the city, but in other municipalities too.
The mass-exodus of millenials from Vancouver is no theory: In 2013, Statistics Canada reported a net loss of 1,571 residents in the 20 to 30 age range, up from 770 in the previous year.
So, where are they going? Burnaby, Langley, Richmond and White Rock are easy answers, but probably not for long.
The percentage of monthly income it takes to own a home in those municipalities is rising dramatically as well, up from around 45 per cent to 54 per cent in 2014. Other areas such as North Vancouver, Delta, Coquitlam, Port Moody and Surrey are equally, if not more, unaffordable.
The only areas left that Vancity reports as key target areas for affordable housing are Maple Ridge, New Westminster, Pitt Meadows, Port Coquitlam and Langley. But, according to the financial institution, they won’t be affordable forever. If trends continue, these areas will be unaffordable to the average household within 15 years.
And the great question – ‘Why?’
While it’s easy, and often accurate, to point fingers at foreign investors, there are contributing causes to the growing affordability of the region. A limited supply of land, for one, is Vancity’s first point.
“British Columbia’s Lower Mainland is strategically landlocked for growth which thereby forces migration of supply to stretch out to the east. With the mountains to the north, the U.S. border to the south, and the Pacific to the west, development can only occur eastward or upward. A Statistics Canada report referred to by the CBC noted that a population growth scenario could see more than two million people arriving in British Columbia by 2038 with many ultimately residing in Metro Vancouver.”
If these migration trends continue, Vancity projects monthly mortgage payments will exceed monthly income by eight per cent. But there is a silver lining: Langley will remain the only affordable region in Metro Vancouver in 2030 with average property values projected to be stable at $525,000.
Beyond Langley, the condo market may be the only feasible place to invest. Aside from the City of Vancouver, where condos are projected to become unaffordable, with an average price of $810,500 by 2018, condos in other communities will remain largely on budget. Vancity suggests that we need to adapt if we plan on living in Metro Vancouver, and that means living in condos.
If governments and institutions decide they want to prevent these projections from becoming reality, Vancity outlines a number of actions needed at various levels:
- Zoning for high-density multi-unit buildings must be increased, recognizing that a “starter home” will soon be a “forever home.”
- Design growth centres with a dense core, tied to mass transit and efficiently leveraged infrastructure.
- Maximize incentives for developers to build for affordable workforce housing.
- Improve transit from suburban areas to central Vancouver, as well as inter-city transit throughout the region
- Require every municipality to have a affordable housing plan that is tied to providing safe, decent and affordable housing to its residents
- Provide inclusionary zoning reduced permitting costs and improved property tax incentives for the development of affordable housing
- Require communities to permanently zone land (in similar fashion to the Agriculture Land Reserve) to provide capacity for affordable housing development in conjunction with regional housing trusts
- Dedicate a portion of the Property Transfer Tax annually to support the creation of perpetually affordable rental housing and home ownership options across the province
- Use the tax code, including tax credits for affordable rental housing, and the regulation of financial institutions to support the development of permanently affordable housing
- Consider allowing accelerated depreciation, which has previously been used to stimulate investment in rental housing in Canada
- CMHC could look to work with the bank regulatory regime to drive investment into affordable housing
- CMHC could also build a policy framework to support the doubling of the density that currently sits on properties it financed in the past that is held by nonprofits and co-ops for affordable housing
- Stabilize mortgage interest rates at levels that restrict speculative purchasing or reliance on increasing market values for homeowner financial stability
- Include supplementary income, such as rental income from a basement unit or extra bedroom, into approval calculations
- Maximize access to down payment loans for families entering the more sustainable condominium market
- Encourage current renters to look at other vehicles of long-term investment, such as indexed mutual funds
- Seriously consider the financial costs and benefits of ownership. If ownership does not currently make financial sense, institute an automated savings and investment plan that can build equity over the long term
- Families should work together and embrace new forms of multi-family living and owning arrangements, such as housing co-operatives, co-housing and co-ownership
- Reduce your footprint: consider a simple, small or tiny house with multi-functional space and furnishings.
- Consider intergenerational community living