Young Canadians Opting Out of Homeownership

In recent years, StatCan data reveals a growing trend among young Canadians who are turning away from homeownership, with their overall mortgage balances declining in recent quarters. This shift is particularly evident in provinces like Ontario, Quebec, and Alberta, where major cities such as Toronto, Montreal, and Calgary are experiencing the most significant impact. As housing affordability continues to be a pressing issue, with house prices rising nearly 40% between 2016 and 2021, younger households face increased economic pressures and a challenging outlook for their financial future.

Despite the declining homeownership rates, a substantial portion of Canadians are exploring alternative means of entering the housing market, with 32% considering non-traditional ways and 48% open to such options in the future. These alternatives include rent-to-own arrangements, co-ownership with family members, and owner-occupied properties with rental units. As younger Canadians navigate this complex market, support from experienced professionals, such as realtors who can advise on non-traditional home purchases, is becoming increasingly valuable.

Economic Factors Influencing the Shift

Due to escalating housing costs, high mortgage rates, and regional differences, the Canadian economy poses substantial barriers to young people aiming for homeownership. Challenges include affording the initial downpayment, managing debt and interest payments, and saving capacity. Lower earners are particularly impacted, often depleting their savings to cope with the rising cost of living and inflationary pressures such as rent and groceries.

Nearly half of young Canadians are battling moderate to high debt, with 60% surviving paycheque to paycheque. The housing crisis is causing financial strain for 53%, affecting their grocery spending (68%), emergency savings (57%), investments (49%), and debt repayments (51%). This financial pressure, primarily due to the housing market, is negatively impacting the mental health of 61%.

Several economic factors are steering people away from homeownership. High interest rates have discouraged 77% of non-buyers, impacting 71% of Canadians. Conversely, low rates boost investor activity, potentially crowding out first-time homebuyers (FTHB). Inflation can enhance wages and buying power but devalue money over time, making property a good inflation hedge.?

Insufficient supply due to limited land, strict zoning rules, and a slow construction rate escalates housing prices. The current building rate in Canada is inadequate to bring back affordability by 2030. Economic health directly influences the housing market. However, the pandemic has brought uncertainty to this relationship due to its impact on job security and, consequently, homebuyer confidence and home prices.

Survey Insights on Homeownership Aspirations

The housing affordability crisis deeply affects young Canadians, with 89% recognizing the need for governmental intervention. 80% are worried about housing costs, a fear that’s grown for 62% recently. The crisis even impacts family planning decisions for 55% of those planning to have children. Consequently, many are considering relocation within their province (46%), to a different province (41%), or even out of Canada (34%).

Government Policies and Market Dynamics

The Canadian government has enacted policies to tackle the housing crisis, investing $9 billion annually in new housing and setting aside $15 billion for apartment construction starting in 2025. The Co-operative Housing Development Program is set to launch in 2024 with additional funding of $309.3 million. Ontario’s Affordable Homes and Good Jobs Act also exempts affordable homes from development charges, aiming to build over 1.5 million homes by 2031. Toronto’s mayor plans to construct 25,000 rent-controlled homes over 8 years on City-owned land and has approved a new Municipal Land Transfer Tax for luxury homes and created a framework to raise the Vacant Home Tax from 1% to 3%.

Government initiatives include a $1.25 billion fund aiding first-time home buyers (FTHB), raised borrowing limits for retirement plans from $25,000 to $35,000, and tax incentives costing $10 billion over 10 years to encourage rental unit construction. The Budget Implementation Act restricts non-Canadians from buying homes for 2 years. Despite these actions, about 60% of young Canadians express dissatisfaction with government responses to the housing crisis at all levels.?

In numbers, 63% are dissatisfied with the federal government’s response, 62% are dissatisfied with their provincial government’s, and 58% are dissatisfied with their municipal governments’ response. In 2021, Canada’s homeownership rate fell to 66.5% from 69.0% in 2011, as the percentage of renters increased to 33.1%. Major urban centres, especially downtown areas, saw population and housing investment surge, with over half of condominiums rented in 2021.

Creative Alternatives

Facing significant challenges in the housing market, young Canadians are increasingly exploring creative and non-traditional ways to achieve homeownership. About 32% are considering alternative methods, with the top options being rent-to-own arrangements (22%), co-ownership with non-spouse family members (21%), and being an owner and primary tenant (17%). A notable 13% of homeowners have used such non-traditional means, especially among those aged 18-34 (25%) and racialized Canadians (27%).?

Additionally, 59% find realtor guidance on non-traditional purchases very beneficial. Regional preferences vary, with secondary suites and co-ownership models being popular. Future trends may include tiny homes, van or trailer living, and 3D printed homes, as alternatives like these gain traction due to ongoing economic pressures.

Long-term Implications

The declining homeownership among young Canadians poses risks to their financial stability and socioeconomic mobility, exacerbated by high debt levels. Homeownership, offering financial advantages like tax exemptions not available to renters, is increasingly unattainable due to affordability pressures. Despite this, social mobility in Canada is also influenced by an education system that promotes advancement based on ability, contributing to happiness.?

However, the housing crisis has adversely affected young Canadians’ mental health and quality of life significantly more than other age groups. The homeownership rate for young adults has dropped notably in the past decade, contrasting with the increase seen among baby boomers. High living costs and housing unaffordability particularly challenge those aged 15-29, leading to a higher propensity to rent and deteriorating mental health since 2016.

Conclusion

The Canadian housing market poses challenges for young homebuyers with rising costs, high rates, and scarce supply. Despite government efforts, dissatisfaction persists. Exploring options, seeking expert advice, securing favourable mortgage rates, and remaining determined is essential. With nesto’s low mortgage rates and proper guidance from our mortgage experts, achieving homeownership is still possible for young Canadians.?

?? Ready to secure your mortgage? Contact nesto’s mortgage experts today for the best rates.??? 1-877-401-5485

?? This article first appeared on nesto's blog: https://www.nesto.ca/featured-articles/march-2024-mortgage-report/