Empowering Millennials to Succeed
As Canada welcomes its first ever Gen Xer into the highest office in the land, now is a perfect time to talk about the crisis in home ownership for younger Canadians. The Millennial generation is struggling to fulfil the dream of home ownership that their parents and grandparents saw as a rite of passage.
In 1989, a new single family home in Ottawa sold for about $155,000. Today, a similar home goes for about $440,000. Young people today are paying three-times what their parents did for their first home! House prices have gone up over 185 per cent in just one generation.
Since salaries have only increased by 97 per cent, the parents of Millennials must provide their adult children with financial assistance to reach the first rung of the homeownership ladder and for good reason. Studies show that owning a home is one of the most fundamental factors in ensuing the long term health, security and financial wellbeing of a family.
While Millennials are graduating from post-secondary education at rates exceeding their parent’s generation, available jobs have even higher educational requirements, come with less security and tend to be more transient. This creates an environment where those entering the housing market for the first time don’t possess the capital or financial security necessary to take on the responsibility of home ownership. The result is a housing market and home ownership levels that are in danger of decline if we can’t find a way to help young families into homes of their own.
Banking on Mom and Dad
Today a down payment of 10 per cent is standard with most builders, and in generations past it was closer to 5 per cent. A generation ago, they saved about $ 7,500 for a down payment; today it takes about $44,000 in savings. No wonder parents of Millennials are increasingly being asked to contribute financially so their children can buy a house.
Changes to mortgage regulations over the past few years have also made it tougher for young people. Zero down payment options are a thing of the past and CMHC has raised its minimum down payment amounts for mortgage insurance coverage.
Taxes that builders must pay often increase at a rate faster than new homebuyers’ ability to save the down payment. Media sources recently described how the Provincial Government’s review of the Municipal Act will likely result in Ontario cities collecting their own Land Transfer Tax. In Ottawa this would add $5,300 to the average price of a new Home. Another provincial tax Bill to be approved shortly in the Ontario Legislature will grant authority to municipalities to increase Development Charges by $6,000 on every new home in Ottawa. Combine these two taxes with a conservative 2 per cent inflation rate and suddenly a new home costs $20,100 more in the space of only a few months. Tax increases such as these have become the norm rather than the exception and there is no way to avoid them.
Interest rates are now at historic lows, but Prime Minister Trudeau’s plans for the new Liberal government to run a national deficit have pundits predicting that rates will inevitably rise. This may be so, but the new government could more than offset these increases if it played its cards right.
Since the proposed deficit is intended for new infrastructure, the government could agree to fund specific projects across Canada on a quid pro quo basis where municipalities agree to implement an appropriate reduction in development charges thus reducing new home purchase costs. This would require provincial agreement and their modification of existing Development Charge Acts but this could be easily done.
In order to solve Canada’s housing affordability challenge we must not only find solutions to constantly increasing taxation, but also get to the core of what Millennials need to be able to achieve the same level of well-paying, stable jobs their parents had. Currently young people are on a treadmill of high student loan debt, increased competition for fewer jobs, and a devaluation of an undergraduate education that puts them in a precarious position to start their families, establish their careers and purchase a home.
The economy cannot sustain itself without the help of new consumers who have the ability to earn and spend like those that came before. If we don’t focus on the needs of young Canadians we will end up with an economy, and a housing market, that will begin to sputter once the baby boomers stop fuelling it. Much of what happened on election night was a call for change, a call to help all Canadians achieve the dreams of previous generations.
Our new Prime Minister has a strong mandate, but also a big responsibility to follow through on the change he promised. Canadians across the country are watching, and they will look to Ottawa for signs that the opportunity to build and support strong families is once again open to all.