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Market Memo: Affordability challenges for the young and the old

Sep 4, 2018
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First National Financial LP

Even with stabilizing home prices, rising interest rates are causing an on-going erosion of housing affordability in Canada.

Affordability is a well-established problem for young, millennial, first-time buyers.  As markets have over heated and home prices have soared they have struggled to put together ever increasing down payments while meeting ever tougher borrowing requirements.  It is also shaping up to be a problem for Canadian seniors.

According to a report from DBRS, older Canadians are facing skyrocketing rents for seniors’ housing as baby boomers sell their homes and move into assisted living and care facilities. 

Last year the national average rent for seniors’ housing was about $2,800 a month.  That is currently increasing at a rate of 4.7% a year – more than double the rate of inflation.  At that rate the average rent will be a very pricey $4,000 per month by 2025.

This comes as a growing number of boomers see themselves heading into their golden years carrying debt.  In particular mortgage debt.  A separate survey conducted by one of Canada’s big banks suggests that more than one-fifth (22%) of Canadians aged 55 and older still owe more than $100,000 on their mortgage.  Nearly half of those people (47%) expect to carry mortgage debt into their retirement.  But even those who are mortgage free, and who have done well in the real estate surge over the last number of years could find themselves struggling as accelerating rental costs outpace investment growth.

Right now the number of seniors looking to move-in to retirement homes is growing at about double the rate that new facilities are being built.   The number of Canadian seniors grew by nearly 22% between 2006 and 2016.  The DRBS report says that by 2026 there will more than 2.4 million Canadians, aged 65 and older, who will require supportive living.  By 2046 that number will have ballooned to more than 3.3 million.

The seniors’ housing shortage could translate into another challenge for millennials hoping to take advantage of the increased housing inventory that is supposed to come as boomers move on.  Many seniors’ advocates are pushing for programs that will keep seniors in their homes longer.  More thorough homecare is seen as an economical alternative to new retirement facilities, especially in jurisdictions where governments subsidize seniors care.

As for the younger cohort, they appear to be holding back.  Millennials have demonstrated consumption patterns that are different from their baby boomer forebears.  For example, millennials have shown a greater acceptance of public transit and ride sharing services.  Many hold off on getting a driver’s licence until well into their 20s.  Boomers who wanted, or needed, a licence usually had it (and a vehicle) by the time they were out of their teens.  Millennials, though, are not giving up on driving or vehicle ownership, just delaying them.

The same appears to be true with home ownership.  An analysis conducted by Murtaza Haider and Stephen Moranis, published in the National Post, indicates millennials still want their own home and would prefer a traditional, detached house.

Citing census data and a Royal LePage report on peak millennials (those aged 25 – 30) Haider and Moranis found that nearly 44% of 20 to 34 year-olds owned homes.  That number jumps to more than 76% among 35 to 54 year-olds.  At the same time 61% of 25 to 30 year-olds stated a preference for a detached home, but only 36% thought they would be able to afford it. 

Taken altogether Haider and Moranis say this suggests millennials are adjusting their timing, not their desires.