Boomers: Here’s why our kids can’t afford a home in Ottawa

Boomers - Here's why our kids can't afford a home in OttawaCongratulations Boomers, today’s Millennials are doing all the right things. They’ve graduated from university or college. They are paying off their students loans. They work hard and they are building lives. They save their money. Yet, they can’t afford to buy a home (at least not without your help). So, why can’t our kids afford new homes in Ottawa and what can you do about it?

Family incomes aren’t keeping up

In 1989, the average price of a new single family home was $155,000. Today, the average price of a new single family home is $440,000. That’s a 185 per cent increase in the price of a new single-family home in Ottawa over the last 25 years. To get a better sense of what this means, let’s compare the increase in new home prices to the increase in our family incomes.
Twenty five years ago, Ottawa’s median family income was $49, 995. Today, the median family income of a family living in Ottawa is $97, 010. Over the course of the last twenty-five years, median family incomes in Ottawa have risen by 97 per cent. Over that same period of time, the cost of new homes has risen by 185 per cent. Put another way, families in Ottawa today are earning twice as much as they did 25 years ago, but the cost of a new home is three times what it was back then. When it comes to the price of new homes, boomers had it much easier than Millennials.

City of Ottawa decisions are increasing the cost of new homes

While it’s hard for the City of Ottawa acting alone to increase our incomes, there are three things that it can do to help Millennials afford new homes.

1. Reduce the tax burden on new homebuyers

Each new home buyer pays a tax of $30,000+ on the purchase of new home in the suburbs outside of Ottawa’s Greenbelt. This includes the suburbs of Orleans, Kanata and Barrhaven, where most of Ottawa’s new tract housing is being built. As of October 1, 2014, this tax will be raised to approximately $38,000. This tax, called a Development Charge, covers the cost of the infrastructure needed to support the home (roads, sewers, police and fire services, etc.). Boomers buying a new home in 1989 in the regional municipality of Ottawa-Carleton paid no development charges or paid a minimal development charge.

2. Expand the supply of land available for new homes

The problem of an insufficient land supply alone adds $25,000 to the cost of a new home. Twenty-five years ago in Ottawa, land was selling for $80,000 per acre. Today, land in Ottawa is selling for $225,000 per acre. In the last 25 years, the price of land in Ottawa has risen by 180 per cent. The supply of land for housing in Ottawa is controlled by the City of Ottawa. In 2009, the City of Ottawa decided to promote growth inside the Greenbelt, by limiting the supply of new land available for housing. This decision – called Intensification – is driving up the cost of land and adding to the cost of new homes.

3. Reduce delays caused homebuilding permits and regulations

Homebuilders require permits and licences to build homes. The challenge for today’s new homebuyer is that the number of permits required from various levels of government is adding years to the building process. In 1989, it used to take two years for a builder to go from an application for subdivision approval to sales of homes in a new area. Twenty-five years later it takes five years to go from subdivision application to the sale of new homes. During those three extra years, the homebuilder is required to finance the cost of the land and carry on their business. Homebuilders have no choice but to pass these costs on to new home buyers.

What you can do about housing affordability in Ottawa?

Today’s historically low interest rates and help from parents are the main reasons why the Millennial new home buyers can afford new homes. As a society, we cannot rely forever on the kindness of parents and low interest rates to support new homebuyers. Low interest rates will not last forever and not everyone has parents who can help.

A municipal election is coming in October 2014. Our elected officials can make decisions that will affect the cost of housing. Boomers and Millennials, ask your candidate about her/his position on:

• New home buyer taxes
• Expanding the supply of land for new homes
• Streamlining red tape for new homebuilding

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