Rising costs and stagnant wages create barriers to entry into housing market
Homeownership, once considered a key milestone towards adulthood for many Canadians, is becoming increasingly elusive for millennials and Gen Z, the Financial Post reported.
Multiple polls confirm homeownership remains a top priority, but rising costs, stagnant wages, and a housing supply shortage create significant barriers for Millennials and Gen Z compared to previous generations.
Data from the past decade corroborates this trend, showing a steady decline in homeownership rates in Canada since its peak in 2011, with renter households growing at double the rate of owner households.
The 2021 census data revealed those aged 25-39 (considered the prime first-time buyer age range) experienced the most significant homeownership decline of any age group since 2011 despite historically having lower rates.
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What's driving the trend
Sebastian Mintah, associate economist at Moody’s Analytics, cited a “perfect storm" of factors making it harder for those in younger demographics to buy homes.
According to Moody's, millennials and Gen Z face more early career pressures, such as higher education costs, tougher job requirements and lower pay, than previous generations, even as housing prices have rapidly outpaced wage growth.
Rising borrowing costs have delivered a major blow to homebuying budgets. RBC estimated higher interest rates since early 2022 have slashed aspiring homeowners' purchasing power by 22%, while home prices have dipped just 1.8%.
"It's no wonder homebuyer demand has cooled so much," said RBC economist Robert Hogue. "The ability of many Canadians to get into the housing market has greatly diminished."
Supply woes
A severe, decades-long housing supply crunch in Canada has also disproportionately impacted younger buyers. With housing starts stagnant, the country's population surge recently saw one housing start for every 4.9 new working-age residents – "no precedent for a housing supply deficit of this magnitude," according to National Bank's Stéfane Marion.
The federal government aims to tackle the crisis through its housing plan, which targets two million homes above projected levels by 2031. However, TD economist Rishi Sondhi cautioned that the "highly ambitious" 550,000 annual construction goal faces steep labour shortage headwinds.
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