As homebuyers, millennials are not so different after all
Millennials have earned a reputation for being slow to leave their parents’ basements, but as the generation begins to grow older, things may be about to change. A recent report revealed that in the Greater Toronto and Hamilton Area (GTHA), a conurbation of seven million persons, as many as 700,000 millennials could leave their parents’ homes in the next 10 years, creating nearly 500,000 new millennial-led households.
Without changes to the pace of home construction, the region could as a result be faced with a shortfall of 70,000 low-rise dwelling units.
The report, by Ryerson University’s Centre for Urban Research and Land Development, pegged the number of millennials in the region at 1.9 million — meaning they outnumbered the baby boomers and constituted the largest source of housing demand.
But are millennials really that different from the generations that preceded them? Research from the U.S., for instance, suggests that millennials are ditching car purchases and instead prefer public transit and ridesharing alternatives.
A closer look at consumption patterns, however, revealed that millennials were not necessarily abandoning car ownership, but were rather delaying it.
The same is pretty much true for millennials’ homeownership in Canada: They are not necessarily abandoning it, they are simply delaying it.
According to census data, in 2016, 50.2 per cent of those in their thirties owned their homes. In comparison, 55.5 per cent of baby boomers owned a home at age 30.
In 1981, 44.4 per cent of the then young baby boomers lived in single detached homes. That share dropped to 35 per cent for the millennials in 2016. This, however, does not suggest a shift in preferences, but in timing.
Consider that the 2016 Census reported that whereas 43.6 per cent of 20- to 34-year-olds owned homes, homeownership jumped to 76.3 per cent for 35- to 54-year-olds. Similarly, the Royal Lepage Peak Millennial survey in 2017 revealed that 61 per cent of those aged 25 to 30 (peak millennials) would prefer owning a detached home, though only 36 per cent believed they would be able to afford one. Housing affordability remains a formidable challenge for millennials. An analysis of housing markets by Brookfield RPS revealed that even during a relatively short period between 2012 and 2017, the amount of shelter space you could buy for $350,000 declined across all major urban markets in Canada. Toronto and Vancouver reported the steepest decline.
The millennials though face a host of additional challenges. In addition to the steep rise in home prices, stagnant wages, precarious employment brought about by the sharing economy, and the expected shifts in labour markets resulting from automation and AI are some of the factors that have influenced their lifecycle decisions.
At the same time, millennials are the most educated cohort and the largest segment of the labour force. Though they make up only 27 per cent of the population, they represent 37 per cent of the labour force. More than 75 per cent of the young women and 65 per cent of the men have received post-secondary education. Still, millennial wages are no better than the relatively less-educated cohorts that precede them.
A lack of full-time employment opportunities that pay wages sufficient to save for home ownership is perhaps keeping the millennials longer in the education system. Currently, nearly two million millennials are pursuing post-secondary education in Canada. This is twice as many gen-Xers when they were at a similar stage in their development.
The millennials are certainly not without help. Analysis of First Time Home Buyer’s finances reported by the Ontario Securities Commission revealed that the millennials are indeed a “gifted” generation as they received large amounts as gifts from family to help them with home purchases. Whereas 31 per cent of the baby boomers and 37 per cent of the gen-Xers received gifts to assist with first home purchase, 45 per cent of millennials received a hand. Cheap and plentiful mortgage credit also helped. For households under the age of 35, mortgage debt jumped from $141 billion in 2005 to $240 billion in 2012. The non-mortgage debt for the same cohort increased by a mere $10 billion to $60 billion during the same time.
Over time and at a slower rate, the millennials are conforming to lifestyles and preferences of cohorts that preceded them. Millennials are not much different, just delayed.
Financial Post
Murtaza Haider is an associate professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at www.hmbulletin.com.