With Canada’s national average home price up 41.9% in 12 months, first-time buyers have virtually never found it so hard to buy a home.
You know it’s bad when the only listings in your price range are parking spots and storage lockers, as chronicled by this recent (paywalled) Toronto Star article.
“They range in price from $5,500 to $45,000,” says the story's author. “While they fall into my price range, the options lack one thing high on my list of criteria: walls.”
Levity aside, millions of young Canadians are feeling defeated. They’ve been increasingly priced out of real estate throughout the 2000s, despite diligently toiling to build a minimum viable down payment.
In fact, more than half (55%) of people polled in a new Point2Homes’ survey say they simply can’t keep up with ever-rising home prices.
Another 44% say that while they’re determined to buy a home, they don’t know when they’ll be able to do so.
“By the time I save up enough for a down payment, the overall costs rise up beyond my reach,” lamented one prospective buyer in the survey. “It’s a constant game of cat and mouse.”
Another dismayed buyer said, “We can no longer afford a house in less than five years. Now it could be 10 or more."
Limited supply is a key culprit. It’s a concern cited by shoppers and experts alike, particularly in the urban centres where new Canadians tend to congregate.
"There is a ‘Manhattanization effect’ in Toronto,” John Webster, head of real estate secured lending at Scotiabank said during a recent VERICO webinar.
"Foreigners will continue to see it as very desirable [as a place to buy]," he said, adding that this includes the majority of new immigrants.
Rates are based on a home value of $400,000
Webster says we should expect to see cities like Toronto and Vancouver become “beyond many people’s reach,” similar to how Manhattan is unaffordable to most. That’s something young people don’t want to hear, but it’s something they’re going to hear more and more.
The hard truth about our biggest cities is, too many people want to live within a half-hour drive to city hall, and there’s only so much space in that radius to go around. As prospective homebuyers get pushed out of the city core, surrounding areas near vital transportation arteries or amenities then get more expensive.
We’re not breaking any news here, of course. Affordability is determined by the laws of economics and it's a problem throughout the world, particularly in thriving cities with less room to spread out. The below chart from Demographia shows this clearly.
The solution is easy in theory. Build more homes. But where, how much will it cost and how long will it take?
The good news is, the revolt is getting louder, much louder. All the negative press over supply mismanagement means there’s finally a fire lit under our government leaders. If they want to get re-elected, they know they have to make headway on solving this emergency.
The bad news is, by the time they do (2030+?) we could have 10 million more people to house.
While Canadians wait for the federal, provincial and municipal governments to address the housing crunch, more first-time homebuyers will be under-housed. That will require hard choices, like living further away from the downtown core, renting longer, and/or putting up with more roommates. And if things get much worse, maybe putting a cot in that storage locker.