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Cara Stern: You shouldn’t have to have rich parents to afford a home, but in Canada you basically do

Commentary

As a Millennial, I often hear from Boomers that Millennials just need to wait long enough for their parents to die, and then they’ll be able to afford a home. It’s mind-boggling to me that so many smart people have disclosed such a morbid thought with a straight face. Waiting for your parents to die is a terrible financial plan, but relying on your parents’ money to buy a home has sadly become the norm in Canada—with some pretty serious consequences for our country. 

A 2021 report from CIBC found that a third of Canadian first-time buyers got help from their parents, with an average gift of $82,000. It found that 10 percent of total down payments came from family help. Focus on Toronto and Vancouver and the average amount rose to $120,000 and $180,000 respectively. That this is necessary is unsurprising given that as of December 2023, the national average price of a home in Canada was $657,145 (rising to $853,915 in Ontario and $965,447 in British Columbia).

Clearly, not every family can afford such generous contributions to their children’s homes, especially when you think about families with multiple kids. Factor in that housing has become more unaffordable because the steep rise in interest rates has not been met with enough of a drop in prices in many places, most notably the greater Toronto and Vancouver areas, to balance the scales.

As such, many parents are taking equity from their homes to help their kids get on the property ladder. And yes, that’s always happened, but it’s multiplied nowadays both in instances and by the amount.

Indeed, Statistics Canada reports that Millennials born in the 1990s are twice as likely to own a home if their parents are homeowners, and three times as likely if their parents own multiple properties.

It’s created this incredibly unfair situation, where people with poor parents have to compete with people with wealthy parents. It’s completely unjust that some would-be homebuyers are out of luck simply because their parents didn’t or couldn’t afford to invest in real estate. 

This state of affairs is raising some very important questions: what happens to people whose parents were not able to buy a home? What about those who have to spend their home-sale money on their own long-term care instead of passing it on to their kids? What if they simply don’t want to leave money to their children? Or, what if they have several children and there isn’t enough to go around for everyone to receive a down payment?

A society that requires a large wealth transfer in order to buy a home is a broken society. Policymakers and everyone else who is comfortably housed need to get over the idea that the housing crisis will solve itself through a giant wealth transfer. There needs to be a better way for Canadians to access family-sized homes during the time in their life when they’re most likely to be raising a family. 

It’s always been the case that those with family wealth had the advantage of financial security, but typically, when Boomers were looking to buy their first home, they could drive somewhere within commuting distance and find something, even if it wasn’t their ideal home or location.

Nowadays, people can forget driving until they qualify for a mortgage—they have to fly until they qualify, leaving behind their jobs and support networks. 

It’s no surprise that Canada recently hit historic lows in birth rates, and I wouldn’t be surprised if we start seeing in the data an even more substantial decrease in birth rates among those who had to move away from family in order to buy a home. Raising children is expensive and doing so without a community of friends and family is unappealing to many and comes with many more challenges.

The Kitsilano neighbourhood of Vancouver is pictured Monday, October 3, 2022. Jonathan Hayward/The Canadian Press.

This financial reliance on parents also puts Millennials and younger generations in an odd position, infantilizing them as they are forced to rely on parental gifts to pay for their homes.

One of the lessons I’ve learned from understanding this data is to never feel like I’m not doing enough when I see friends with bigger and more beautiful homes, or going on much nicer vacations than I could ever afford. I now assume that many of my friends and acquaintances received substantial family help.

No one has imprinted this into my mind better than financial planner Shannon Lee Simmons in her book Worry-Free Money. If you don’t know someone’s financial situation—even if you know their income—assume they have Beyoncé money, because they just might have access to a vast amount of wealth. Trying to keep up with your friends is a recipe for financial ruin, not to mention a lot of anguish and frustration. And Millennials are already incredibly indebted and hit harder than older generations by interest rate increases.

As a Millennial, I’ve seen people with relatively high incomes priced out of ever buying a home, and I’ve seen friends making median salaries or less buy stunning homes. But income only shows you a small slice of someone’s financial pie. In fact, income plays a surprisingly small role in whether you can afford a home. What is increasingly more important is when your parents bought, and how much they are willing or able to help you out. This is particularly challenging for newcomers, whose parents weren’t in the country to ride the great Canadian real estate wave. 

That needs to change if we want a fair society—and not to mention, if people want to live anywhere near their grandchildren!

Sean Speer: The consequences of Canada’s housing-based inequality are immeasurable

Commentary

Eric Lombardi’s recent essay for The Hub on how Canada’s housing crisis risks transforming the country into a neofeudal society certainly touched a nerve. It reflects a growing (and compelling) view that one might describe as “the housing theory of everything” in which high housing prices have come to hold explanatory powers over various economic, social, and even psychological trends in modern Canada. 

His basic thesis—the inability of many young Canadians to enter the housing market without familial financial support is creating a new source of social bifurcation—is straightforward and supported by evidence. Recent polls in British Columbia and Ontario for instance have found that 40 percent of first-time homebuyers in the two provinces have depended on financial support from their families. 

These figures are consistent with new Statistics Canada research that shows that the homeownership rate for millennials and members of Generation Z whose parents themselves are homeowners is more than double those whose parents are not. Housing wealth, in other words, has increasingly come to beget more housing wealth. 

The bigger point—housing-based inequality is an interpretive lens for understanding broader trends including the public’s general sense of malaise—is one that the Trudeau government has quite possibly come to understand too late for its own political survival and one that Canadian policymakers more generally have failed to understand to the detriment of current and future generations. 

One of the indirect yet powerful ways in which these housing affordability challenges have manifested themselves is in the form of delayed family formation and declining fertility rates. The interrelationship between housing prices and family planning is somewhat intuitive. Housing costs—particularly in high-cost localities—are a major household expenditure and therefore necessarily influence our short- and long-term expectations including when to start a family and how many children that families ultimately ought to have. 

A well-regarded 2014 economics article put it this way: 

Rising home values have a negative impact on birth rates because they represent, on average, the largest component of the cost of raising a child: larger than food, childcare, or education. This implies that when the price of housing rises, the price of having children also rises. This price increase leads couples to delay childbearing or to have fewer children altogether.

This interplay between housing and family formation is having perverse effects in Canada. Unlike most peer jurisdictions, babies in Canada have become, in the words of demographer Lyman Stone, a “luxury good.” His research finds that higher-income Canadian families tend to have both higher desired and actual fertility rates. As he put it in a 2023 episode of Hub Dialogues: “Canada’s a place where fertility is uniquely, positively correlated with income, which is nerd speak for Canada’s a place where family is a sign of wealth and social class. If you’re rich, you can buy the right to have kids.”

Housing is a big part of this story—especially as it has become a leading indicator of income and wealth in Canadian society. Previous analysis for The Hub by Steve Lafleur for instance has shown that a household must now be among the top 10 percent of household income to even qualify for a mortgage in the City of Toronto. Similarly, research by TD Economics has found that wealth inequality in Canada is, by and large, a function of the differing outcomes between homeowners and non-homeowners, including both intra- and inter-generationally. 

It’s not a complete coincidence therefore that Lombardi’s essay was published the same week as new data from Statistics Canada that the country’s fertility rate hit an all-time low in 2022. At 1.33 children per woman, the country is not only 0.6 percentage points below the replacement rate, but its year-over-year drop was among the largest in high-income countries and Canada’s own history. The same analysis found that the average age of first-time mothers has increased from 27.6 years in 1976 to 31.6 years in 2022. 

Although these developments are undoubtedly multicausal, it’s notable that Canadian women tell consistently pollsters that there’s a gap between their desired and actual fertility rates. They’d actually prefer to have a number of children approximating the replacement rate, but there are different impediments standing in their way including high housing costs. 

Thiago Lang and Graziela Cariello feed their son 19-month-old son Pedro at their home in Barrie, Ont., on Monday, April 25, 2022. Tijana Martin/The Canadian Press.

As Stone has previously written

If young people are stuck in smaller houses than in the past, or in more unstable or expensive housing situations, it could reduce fertility…There is some good suggestive evidence that this may be happening… at every stage, the housing situation for young people disfavours childbearing more than in the past, which is almost certainly a major driver of low fertility today. 

Even if one accepts that Lombardi’s claims about neofeudalism may seem a bit provocative, his characterization of Canada’s socioeconomic context in which homeownership and child-rearing are increasingly expressions of (hereditary) wealth clearly resonates with a lot of young people (including members of The Hub’s staff) who are seeing both become the purview of their wealthier and more advantaged peers. 

Setting aside the economic and social costs of high housing prices and their effects on fertility rates for a minute, there’s something conceptually incompatible with the egalitarian promise of Canadian society for the “haves” to be able to own homes and have children and the “have nots” to have neither. These basic milestones of what has traditionally been understood as the “good life” shouldn’t be treated as luxury goods. A society in which they are—in which the aspirations to own a home or become a parent are understood as signs of wealth or social class—can persuasively be defined as neofeudal. 

As for the costs themselves, they can never be fully measurable. A full accounting of the opportunity costs of the births and lives that never come into being or the social costs of growing stratification will ultimately be greater than we can ever understand.