An Ontario Real Estate Association-sponsored study warns of a severe housing dearth that’s beginning to loom large.
The study, produced by Ryerson University and titled Millennials in the Greater Toronto and Hamilton Area: A generation Stuck in Apartments?, warns that 700,000 millennial-aged first-time homebuyers will be entering the housing market within the next decade, but that empty nesters won’t be ready to move out of desired single-family detached dwellings until at least 2040.
“The report points out that the best way to help ensure the Canadian dream of homeownership stays within reach is by increasing housing supply, particularly for starter homes and the missing middle,” said Tim Hudak, OREA’s CEO. “The missing middle is a neat solution because it is appealing to millennials and first-time homebuyers, given its affordability, but it’s also attractive to empty nesters because they can still stay in the city close to their grandkids, but free up the traditional family home for somebody else.”
All levels of housing are interdependent, and with boomers occupying single-family homes longer, a chain of disruption affects the entire market.
“Many assumed that empty nesters would put their house on the market, but, increasingly, they’re staying in their homes,” said Hudak. “Right now, it’s a game of musical chairs. Because we haven’t added onto the supply and somebody moves, musical chairs ensue where maybe a few people move up the ladder. That results in higher prices and doesn’t help millennials get a place of their own.”
But while enlarged housing supply will ease unaffordability to a degree, there are other impediments in first-time homebuyers’ way. For one, mortgages are difficult to secure for mature purchasers, to say nothing of those trying to enter the market for the first time.
“Governments have piled on the back of millennials and first-time homebuyers, making it harder to get a mortgage and paying higher taxes,” said Hudak. “The study we released says the government should do just the opposite. Millennials are now entering the time where they’re getting promoted at work, making more money and thinking of raising families. They’re looking to get into the housing market, and government should be focusing on increasing supply and helping to get the costs down, like lowering the Land Transfer Tax.”
Over most of the last decade, a seemingly growing number of obstacles have made homeownership difficult to attain for would-be first-time buyers.
“Every year, starting six or seven years ago, it’s gotten harder and harder for first-time homebuyers to enter the housing market,” said James Laird, CanWise Financial’s president and broker of record. “Regulation has been big; going back to 2010, each year it’s become more difficult to qualify for mortgages, from reducing the maximum amortizations to increasing the minimum down payments, to increasing the cost of high-ratio insurance, and more recently, adding the stress test. The rapidly rising cost of real estate has also made it more difficult.”
Historically-low interest rates were a saving grace, but those days appear numbered—Laird bandied the possibility of fixed rates surpassing 4% by next year. But given their respective qualification figures, millennials will have to decide whether or not that backyard is worth living farther from employment.
“The millennial generation will probably shift their expectations a little bit, or face a long commute to the suburbs, or maybe even make a decision to live in a smaller community, but they’ll have to figure out where they can work in that community,” said Laird. “I think their expectations need to be reset. In major cities, with how much raw land costs, builders are, for the most part, only building high-rise, high-density housing. A far greater percentage of new housing units are condominiums.”
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