Owning home pipe dream for young
A 20% down payment locally now takes 14 years of saving, study says
A University of British Columbia study of the Ontario housing market found the pace at which the dream of home ownership is drifting away from young buyers (25 to 34) in the Windsor area has nearly tripled over six years.
In 2015 it took about five years to save up a 20 per cent down payment, compared with 14 years by 2021.
The local findings in the UBC'S Generation Squeeze Lab report reflect a trend that accelerated in 2020 in Ontario to create the largest erosion of housing affordability experienced in any province in the past five decades.
The full report is available at gensqueeze.ca/housing_affordability_analysis.
“The fact Ontario had caught up to British Columbia (in unaffordability) was just alarming,” said the report's author Paul Kershaw, a professor in UBC'S School of Population and Public Health and founder of the Generation Squeeze Lab.
“We'd never seen that before. You're poised to take over the status of being the least affordable and most unfair housing system in the country.”
The average home price in Ontario at the end of 2021 has increased by 44 per cent ($265,000) since 2018, to $871,688.
It has resulted in a 20 per cent drop in the rate of home ownership for those under 45 years of age.
The average sales price in the Windsor area in 2022 is $698,583, which is 31.5 per cent ($167,511) higher than for the first four months of 2021.
With so many forced into the rental market, the average monthly cost for a two-bedroom apartment has risen from $866 in 1981 to $1,465 in 2021. The current average monthly rate for a two-bedroom in Windsor is $1,500.
“Most of this (in Windsor) has occurred since 2018,” Kershaw said.
“It now takes 14 years in Windsor (to save a 20 per cent down payment), so you've just lost this enormous payoff from hard work when it comes to saving a down payment for the major cost of living in your community.
“There's this massive gap between the major cost of living expense and full-time earnings.”
Kershaw said for housing to fall into the affordable category for the majority of young buyers, the average price of a Windsor-area home would have to drop a minimum of 40 per cent, or $220,000 based on current interest rates.
The study covered the period up to the end of 2021 when the average price of a home sold in December was $522,177.
In the absence of declining housing prices, Kershaw said the average wage for young buyers would have to increase by 68 per cent to $84,000 annually compared with current levels to be affordable.
“It's sad for the younger demographic in Windsor, who until four or five years ago had seen resistance to the contagion of housing unaffordability,” Kershaw said. “What's happened in Windsor follows the suffering of the same pattern driving housing out of reach in other parts of Ontario.
“The hope of getting a good job in one of your auto plants and saving to buy a home, that dream is increasingly not realistic for young people as it was for older homeowners.”
However, the Windsor area still lags behind the rest of the province when it comes to unaffordability and the wage gap.
For a young buyer (24 to 35) to be able to afford to carry an 80 per cent mortgage at current interest rates on the average home based
on current local wages in their age bracket, prices need to fall $750,00 in the Greater Toronto Area, $250,000 in Ottawa, $445,000 in Kitchener-waterloo, more than $500,000 in Hamilton-burlington and $350,000 in London.
To qualify as affordable at current prices, where 30 per cent of household income is dedicated to housing, average wages would have to be $172,000 in the GTA, $102,000 in Ottawa, $122,000 in Kitchener-waterloo, $136,000 in Hamilton and $100,000 in London.
Kershaw said the supply and demand equation is certainly a factor in rising prices, but he said all governments are making the mistake of overly focusing on that issue.
“The Province of Ontario was not aggressive enough to slow down prices the last four years,” said Kershaw, who added all major political parties have dropped the ball on housing.
“The housing being built isn't affordable. There's not enough attention to non-profit housing.
“The provincial government has been slow to take advantage of the low-hanging fruit to stall housing prices. Things like non-residency
taxes should have come in years ago. There's also short-term rental and vacancy taxes.”
Kershaw said the COVID-19 pandemic and remote work opportunities have allowed the GTA'S housing wealth to flood the rest of Ontario, pushing up prices bolstered by the Bank of Canada's low-interest rate policy.
He also said the way Statistics Canada doesn't factor in the actual cost of housing into its inflation statistics used by the Bank of Canada to guide monetary policy has also contributed to keeping interest rates low for too long.
These factors have resulted in housing becoming viewed as an investment vehicle more than a place to live.
“Cheap credit has allowed for the bidding up of prices and we've grown used to the expectation of rising prices,” Kershaw said.
“It's a gain for homeowners who have become wealthier, but it's also creating more housing inequity.”
Ontario's housing market has grown by $1 trillion in value in the past 45 years, with 41 per cent of that gain being enjoyed by homeowners 65 and older.
Kershaw says it's going take some political fortitude to implement the tough decisions needed to tackle the issues.
In addition to fixing the way Statistics Canada tracks housing inflation and using the previously mentioned options to stall housing prices, Kershaw proposes a surtax on homes valued at $1 million or more.
That would affect about 22 per cent of all residences in Ontario.
The annual tax would start at 0.2 per cent and rise to a maximum of one per cent. The tax wouldn't be payable until the home is sold. A 0.2 per cent tax rate equates to $400 annually.
The study estimates Ontario would collect about $3.43 billion annually.
“We need to ask Ontarians living in homes over $1 million to pay a price on the windfall they've accumulated,” Kershaw said. “It would create funds to invest in affordable rentals and co-op housing.
“We're already seeing the consequences of housing inequality.”