Generation... unhoused?

We are missing something really significant, and it is going to be a problem in the next 10 to 20 years, a very big problem if we do not act.

There are entire generations of Canadians that cannot, or will not, be able to afford to own a home. (That was not a mistype, generation is plural intentionally.)

Generation Z is in the unenviable position of living during a time when the cost of home ownership is unattainable, and it is not due to interest rates - so remove that thought from your head immediately. No rather it is the explosive increased in the value of Canadian homes over the past 30 years, with no end in sight.

The result is far more dire for us in the future than it is today.

While interest rates do play a role in the cost of housing, they are not the critical pivot item that many people might have you believe. Interest rates are not solely responsible for the affordability crisis, nor is government. We started to experience affordability issues in Canada in the early 2000's when rates were where they are today, and we still had a supply issue and affordability constraints.

If you factor in the changing interest rates, you can actually see that as rates declined, affordability actually also declined across the country. Why? Because low interest rates artificially make a home seem more affordable than it is as it reduces the monthly costs. Low interest rates make buying an investment property more attractive, and in Canada we have seen the rise of investment class buyers grow as they leveraged existing properties to acquire additional properties.

As these investment class buyers swallowed more and more homes, a staggerng number for short term rentals, industry did everything that they could to encourage more Canadians to leverage their existing homes to buy investment properties. Industry pushed the government to relax the rules surrounding these types of properties with several lender, realtor, and mortgage broker associations lobbying the government for these changes.

No more were investment properties considered commercial lending, now they fell squarely under residential. The government, bowing to industry pressure, even allowed these properties to be insured (meaning that one could buy an investment home for a mere 10% down).

Those rules, thankfully, started to get rolled back in 2015 and you could no longer buy an investment property using a government insured high ratio mortgage. If you do a look back search you will find many articles, posts, and "analysis" from Realtors, Lenders, and Mortgage Brokers that all predicted that the tightening of these rules would irreparably harm the housing market. No so.

Fast forward to the COVID period and an estimated 70% of new homes in the major centres of Canada are purchased by people who already own a property - in other words, Investor Class buyers. A first time home buyer, who has only managed to save a 5% or 10% down payment cannot compete with someone who can leverage equity in an value escalating property to out bid a residential class buyer. I know someone who, when buying their home, bid on over 30 homes in the lower mainland. They were outbid on all but one, and kept records of each. Of the 39 properties that they bid on and did not get, six are owner occupied, and according to the address searches there are 12 long term rentals, all other (20) are listed as short term rentals. That was in 2019 before COVID and the drastically reduced rates to keep the economy moving.

Those lowered rates, and the sheer volume and financial power of the investor class has further driven the average value of homes up. Don't believe me? There are examples across the country of values shooting up when investor owned property numbers escalates. That is because less homes on the market for ownership means more competition which means higher prices. Again, this started happening before rates dropped over COVID, so it is NOT simply a rate driven scenario.

Now let's look at the supply issue. If we took all investor class owned properties, where the owner owns more than two, and only factoring short term non-owner occupied, it would add an estimated 150,000 properties in ONLY major population centres (larger than 100,000) back onto the market. Think that would lower the price of homes? You are correct, it would. Dramatically. Imagine if there were 20,000 additional homes on the market in just Vancouver?

There there is the argument that developers cannot build enough stock because the government is holding things up too much. That is only partly true and is being used as deflection.

Yes government needs to get real when it comes to the sheer amount of tax, and bureaucracy. That said, developers do not REALLY want to start pumping out more affordable homes, nor do they want to flood the market with additional stock. Yes, they want to build more, but the cost per square foot that they are selling for is not going down, just the opposite. Builders make more per-square-foot profit today than they did 20 years ago. You only have to look at their own public financial releases to confirm that this is in true.

Adding more stock only works if the homes added are affordable. Charging $600 + per square foot for a "budget" home is not at all affordable. There is one building mere blocks from me here in Vancouver that was billed as a boon for the new housing that it introduced in the area. At a cost of $1900 per square foot.

The building displaced over 200 rental tenants, not one of whom could afford to buy in the building that replaced their homes. Based on the price per square foot, the average owner would have to earn well over $100,000 per year to afford the smallest 500 square foot apartment that sold for $950,000.00. Given that the average in come in the neighbourhood per household is only $74,000 - the number speak for themselves.

If the market was suddenly balanced, or flooded with new stock that would reduce the average home value. It would also put downward pressure on the price of a newly constructed home resulting in less profit.

The result is that we are being very short sighted and are not looking beyond our noses to consider the long term ramifications of what we are, or are not, doing. What most people do not seem to recognize, in particular in the Real Estate and Mortgage industries, is that we are dooming our own futures.

Less people being able to afford to enter the housing market means less buyers over the long term. Investor class buyers, while having a lot more money, are still limited in what they can financially do. Eventually they too will be tapped out.

Less people buying homes means less sales, less mortgages, and that means less business for Mortgage Brokers and Realtors. It does not bode well for the future of many sales professionals, nor the sustainability of our industry. If we have entire generations priced out of the market, and smaller investor class buyers unable to expand, it will leave around 20% of Canadian property owners (personal and corporate) as the dominant land owners. There is one neighbourhood in Alberta where ONE company owns nearly 1/2 of the detached homes in the area, all are rented. There are 50% less properties available, and when a listing goes up - the company buys it. They even actively solicit homeowners to sell them their homes and then arrange for the owner to stay in the home paying rent.

Here in Vancouver, we are seeing Investor Class buyers buying up individual strata units, then eventually converting the building into a rental building. Sounds OK on the surface, but when you dig in, not so much.

The building is in the west end of Vancouver and has about 40 units. Prior to the investor embarking on their path, the average monthly costs to live in the building were less than 4K per month (Rents, mortgages, strata fees averaged over the 40 units and based on publicly available data). As the investor bought up more units and rented them out it created conflict with existing owners who then sold to get out of a hostile environment. Today of the 40 units only 2 remain owned by their occupants. The average rent for a unit in the building is a range from $6500 per month up to $25,000 per month - in a 47 year old building.

There is nothing wrong with that per se. It is legal, but it also directly impacts housing affordability and availability of stock. Homes bought by Investor Class buyers are not additional housing stock other than the increase in rental homes. As the availability of home to buy decreases, it forces people to rent (or live on the street) thus reducing home ownership opportunities.

We have not seen it yet, but as the market continues to evolve, and if we do not find a way forward, we will start to see the rate of homeownership decline in Canada. I predict that by the mid 2030's, and if we stay on the same trajectory, the number of Canadians that own their residences could drop to below 50%. That would be the first time since WWII, or nearly 100 years, since we have seen those kinds of numbers.

If only 50% of Canadians own their homes, that directly impacts GDP, wealth, housing stability, and more. In fact it has been shown that people who own their homes are far less likely to go insolvent, they are more likely to vote, contribute more economically to society, and have far higher food stability. Neighbourhoods where the homes are predominantly owned also have higher literacy rates, higher average incomes, lower crime rates, lower child poverty, and more.

In the consistent drive for wealth and fast money we are inexplicably walking towards a future that is less equitable. The number of unhoused, or underhoused, Canadians is growing faster than any time since the great depression. If that doesn't scare you as a sales professional, then you need to wake up.

Looking at it from a social perspective, a moral, or even purely considering the potential to earn and grow, we need to be on the right side of this issue. A sales professional cannot succeed, or even exist, if there are fewer (or no) customers.

Rather than, as an industry, simply pointing at government and blaming them, we need to be a part of the solution. That means talking to our elected officials and working together across government and industry to find a solution that works for the long term stability of the housing market in Canada.

If we do not, then we run a real risk of seeing the contraction of the industry. That reduced income will be nothing compared to the social fallout that arises from the impact it will have on most Canadians.

A final thought. Many people who read this article will not agree with my thoughts. Many will simply state that the younger generation will inherit their parents properties. Maybe, but if those homes are leveraged that debt needs to be paid in full - if the beneficiaries cannot afford the mortgage, all they can do is sell the home. If they cannot afford the home as is, and they sell, yes they will have money, but probably not enough to make another home affordable.

There is a reason why people are not listing their homes right now, and it is not just because of interest rates. It is largely because the escalating values have even priced out people who own their homes today, yet cannot afford to buy a new home as they cannot afford the costs. Interest rate decline might open the door for some, but not for the vast majority.