Is the Canadian Housing Crisis Real? How Do We Tell?
An issue that consistently makes the financial news headlines is the talk about housing prices in Canada. Another issue that also consistently makes the news is the plight of millennials. Some say there is no such plight, others that millennials suffer from laziness, etc. Put the two together, and you have a perfect headline: The millennial housing crisis, as demonstrated here by the national post.
As with anything financially related, we have to take a look at the numbers. There are several factors to consider. The obvious number would be the average home price. Looking only at home prices present some issues as it doesn’t consider other factors such as inflation, or wage increases.
One number that experts like to use to gauge the relatively “affordability of homes is the price-to-wages ratio. We take the average home price, adjusted for inflation, and divide it by the median income for people in one geographical area. Let’s take a look at an example using British Columbia which, along with Ontario, has rising home prices.
Note: All the numbers have been adjusted for inflation. Inflation describes the fact that prices of everything tends to rise bit by bit over time. As a result, $100 from 1976 would actually buy you the same amount of goods as $431 in 2018. To have an accurate comparison, we have adjusted the numbers to account for this factor.
Back in 1976, it took the median income earner 4 years–if they don’t spend a single cent of their money–to save up for a home. In 2016, it will take someone 14 years. Let’s apply the same comparison to the province of Ontario:
According to the numbers, Ontario is nearly as bad as British Columbia. What’s more disturbing is that the median income for both provinces have actually gone down in the last 40 years. Furthermore, the numbers are even scarier if you’re looking to buy a place in either Toronto proper or Vancouver proper, rather than the suburbs. For example, in Vancouver, the average detached home is now priced at $1.6 million, making the home price to earnings ratio a staggering 32.
Looking at the numbers, it’s plain to see that the housing crisis is very real. And the response from millennials have reflected that. Young people are leaving in droves, as seen from numbers by statistics Canada. Not only are millennials leaving, seniors are leaving as well, possibly to cash in on their increased equity in order to seek better, more affordable retirement locations.
What can millennials do? At this point, perhaps the best solution is going to the best bank there is: Mom and dad. But all hope is not lost. With a good financial plan and savings, it’s still very possible to own a condo. Perhaps rather than expecting to own a single family home, we should adjust our expectations to something more similar to that of bigger cities like NYC or Tokyo, where condo living has been the norm for decades.