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Posthaste: Canadian dream of owning a home is fading for a whole generation Back to video

Poll after poll has shown that homeownership is important to Canadians.

Yet for many millennials and gen z that dream is fading because of a “perfect storm” of challenges that is making it harder for them to get on the property ladder than previous generations.

“Once a key milestone on the journey to adulthood, homeownership has become increasingly elusive, particularly for millennials and gen z,” said Sebastian Mintah in a new report from Moody’s Analytics.

Since it peaked in 2011, homeownership in Canada has been falling steadily. As a result, renter households grew at twice the pace of owner households over the next decade, “reflecting the growing challenge many Canadians face in achieving one of the core tenets of the Canadian dream, homeownership,” he said.

The higher interest rates and inflation over the past few years have been a big part of that challenge.

According to the Royal Bank of Canada, higher borrowing costs have shaved 22 per cent off aspiring homeowners’ budgets since the first quarter of 2022, when the Bank of Canada began hiking interest rates. Home prices, meanwhile, are down just 1.8 per cent.

“It’s no wonder homebuyer demand has cooled so much,” said RBC assistant chief economist Robert Hogue in a recent report. “The ability of many Canadians to get into the housing market has greatly diminished.”

Moody’s identified this “surprising trend” in 2021 census data. People aged 25 to 39 in the prime first-time buyer age range, not only had the lowest homeownership rate, but also suffered the most significant decline of all age groups since 2011.

It’s natural for the younger age group to have lower homeownership because they have had less time to build wealth and assets. But this generation has also been hit by a “perfect storm”  of challenges that has made it harder for them to compete in today’s housing market, compared to what they might have been able to achieve in past decades, said Mintah.

Younger Canadians are facing more pressure early in their careers than what older generations faced in their time, he said. Education costs are higher, job requirements tougher and pay lower than it was decades ago, while housing prices have outpaced wage growth.

They are also facing the full force of a housing affordability crisis that has been brewing for decades.

Canada’s population surge over the past few years exacerbated its housing shortage. While the country’s working population swelled by a record 3.7 per cent at the start of this year, housing starts remained essentially flat.

At one housing start for every 4.9 people entering the working-age population, “there is no precedent for a housing supply deficit of this magnitude,” said National Bank of Canada economist Stéfane Marion.

“Unfortunately, it could take years to get things back to normal,” he said. “In the meantime, Canadian households should not expect any significant relief from housing cost inflation.”

The federal government is throwing its full weight against the problem. “Canada’s housing plan” contains a number of measures aimed to encourage home construction, many of which the industry has been seeking for years, said Toronto Dominion Bank economist Rishi Sondhi.

But the economist cautions the plan, which calls for two million additional homes to be built above normal construction output by 2031, is “highly ambitious.”

The target suggests 550,000 housing units would have to be built every year, which is way above historical highs, said Sondhi.

Achieving the goal also faces some pretty steep headwinds. The construction industry is already operating flat out, and worker shortages will make it difficult to pick up the pace, he said.

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Mind the gap. We’ve been hearing that a lot lately in regards to the potentially diverging paths of the Bank of Canada and the United States Federal Reserve.

Governor Tiff Macklem told lawmakers this past week that Canada’s central bank can cut its interest rate ahead of the Fed, but there are limits.

Bank of Montreal’s chief economist Douglas Porter reckons the Bank of Canada can probably cut interest rates twice ahead of the Fed before the Canadian dollar really feels the pain.

His chart maps out out the history of Canadian and U.S. short-term rates, showing the biggest gap was in the early 1990s when it widened to more than 5 percentage points.

Over the past 50 years the median spread was 50 basis points, but since 2000, it’s been less than 15 bps, said Porter.

The gap tightened further after the great financial crisis, with the spread never reaching 100 bps in either direction since late 2008, he said.

“We would view the experience of the past 15 years as setting the reasonable limits to which the BoC could deviate without causing undue stress on the currency,” said Porter in his note.

“With the spread already starting around -33 bps, that gives the BoC room for roughly two independent cuts.”

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More retirees are working part time to bring in a little extra cash while they can, but that raises more questions about when to draw on your Canada Pension Plan. Certified financial planner Allan Norman says that decision is not just about the math, but how you want to live in your retirement years. Find out more in FP Investing.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line at aholloway@postmedia.com with your contact info and the general gist of your problem and we’ll try to find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers led by Julie Cazzin or one of our columnists can give it a shot.

McLister on Mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Read them here 

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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