the thirties grind

get up, go to work, raise kids, pay bills, sleep. repeat.

Vancouver millennials should lower their home-ownership expectations

stop_dreamingA new report says home ownership amongst Vancouver Millennials (those born between 1982 and the early 2000s) may be quickly becoming unrealistic.  According to Vancity, in Metro Vancouver, the average property now requires more than 48% of the average household’s monthly income — dramatically higher than the debt-load of 32% recommended by the Canada Mortgage and Housing Corporation. If pricing trends continue, a forecast for Metro Vancouver sees the average home price in Vancouver exceeding $2.1 million by 2030—requiring more than 100% of household income to maintain.

Not good news for youngsters who still view home-ownership as a major life goal.

Outside of Vancouver, prices continue to soar, with the report indicating that by 2030 the only affordable suburb in the Metro Vancouver region will be Langley.


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3 thoughts on “Vancouver millennials should lower their home-ownership expectations

  1. According to the IMF and OECD, and many other economics of global reputation, Canadian housing is in a bubble of unique and unprecedented proportions. And if the Canadian housing market is, as the consensus opinion currently holds, on average 30% above underlying economic fundamentals, then Vancouver is at least 50-60% above the long term value trend line. That is to say that property prices are more than double what has ever been sustained in history.

    Three factors account in large part for this bubble: 1) foreign capital, 2) low interest rates, 3) and insatiable desire by civic governments in the lower mainland to upzone real property. The first point is well known and documented in Ian Young’s Hongcouver blog and Andy Yan’s research. The lowest interest rate regime in over a century and a decade of overly permissive Canadian mortgage banking rules–from 40-year amortization periods to continued taxpayer-subsidized and -backstopped CMHC mortgage insurance–both spiked lending well beyond historic norms and fiscally-responsible levels. Finally, with its epicentre in Vancouver, local governments have regularly begun to sell density almost anywhere in their cities. Single family lots on Cambie Street, once well below the surrounding and quieter streets, rose from $300,000 in 2004 to over $3 million in 2014 solely because the city signalled higher buildings would be allowed there. A recent Supreme Court case brought by the Community Association of New Yaletown resulted in a ruling that the Vancouver City Council improperly allowed development well beyond permissible zoning. And just what does all this city-wide upzoning do? It spikes land values, and almost anywhere. Towers are now being built in older single family areas without any new Official Development Plans, and in fact no planning at all, for parks, for schools, for hospitals, for police and emergency vehicle access, for fire department response, for community centres, for transportation, for transit, or for any other civic amenities.

    It’s a reckless free-for all. And as Nobel prize winner Robert Shiller commented in his book “Irrational Exuberance,” these situations always end badly. They did in the US in 2008, and almost 7 years later, 35% of US mortgage holders are still under water. Their property is still worth less than their mortgage liability. They cannot move, cannot sell, and have no expectation of ever using their home for retirement savings.

    Finally, net migration to BC has come to a grinding halt. After immigration rates into Vancouver as high as 6,000 per year in the early part of the first decade of the 21st century, the last census saw this net inflow cut in half. And last fall the net migration into BC in total dropped to just 1,325. The biggest single change was a net outflow of almost 7,000 non-permanent residents. We need to wonder just who’s leaving, and why. Is it the lack of jobs, increasing gang violence, unaffordability, cashing out for retirement, or the endless rain? Here is the data from Urban Futures:

    “Here in BC, our population growth was relatively flat, with the province adding only 1,325 people in Q4. While natural increase (the difference between births and deaths) added 1,900 people, and net interprovincial migration added another 2,500–BC’s largest Q4 addition since 2007–the province lost 3,150 people through net international migration. As was the case for Canada as a whole, this was driven by the loss of non-permanent residents (to the tune of a net outflow of 6,950 people in Q4).”

    Why cannot we learn from the lessons of history and the research of the top economists?

    The lesson here is that Millennials just need to wait. Local and global forces beyond their control have conspired to penalize them at this point in time, to foist a huge intergenerational transfer of wealth to the older generation, the Baby Boomers in particular, and to force people out of Vancouver or even onto the streets. BUT, booms bust…always. This time is no different.

    And by the way, VanCity’s data is misleading. Averages are a poor means of analysis in population studies, and especially around income. What is 48% of the average Vancouver income going toward housing is 60% of the median income. That is to say that half of the residents in Vancouver are paying more than 60% of their income toward housing (which includes all housing-related expenses, such as utilities). And certainly by 2030, and more likely by 2020, prices will revert to the historic mean and be half of what they currently are. Or less. It’s time to get ready for the roller coaster ride: .

  2. There are studies that claim most millennials have no desire for home ownership. Perhaps that desire changes with time and millennials will purchase later in life, if they can afford too.

    It doesn’t take a high IQ to realize if one can afford a home or not. More difficult is to balance ones life wants against the commitment of home ownership that sucks away 40, 50, or 60 per cent of your income. For some it’s worth the price. But I would guess the excuse given by those “living for their expensive mortgage” is the comfort of preparing ones retirement through asset appreciation. Because you certainly wouldn’t have any savings left to sock away for old age. I hope that way of considering home ownership works out for those who made the commitment. Awful big bet to take with ones life.

  3. Raincouver on said:

    I’m not quite sure whether I should be more disappointed with van city for doing their part in fueling this insanity (which, of course is fully predictable) or the CBC for giving them all that air time and hence wasting my time listening to douchebag real estate pumpers. When this whole mess comes home to bite us in the rear I say: NO BAILOUTS!!!! – NONE!!! – EVER.!!!

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