When Andrés Peñaloza and his wife Maria Fernanda Gonzalez first immigrated to Canada from Venezuela more than two years ago, they dreamt of a better life, which included owning a home. But after years of looking to buy something that would be suitable for the family they hope to start in Vancouver, they’ve quit searching.
“We’ve seen the bidding wars and houses selling way over asking price. It’s very discouraging,” Peñaloza, who works as a research assistant at the University of British Columbia, told Global News.
With the average home price in Canada jumping 31.6 per cent year-over-year in March, Peñaloza and Gonzalez are part of a cohort of people under the age of 35 who feel that their dreams of homeownership are increasingly out of reach. These millennial prospective buyers have seen their earnings hammered by two major recessions now.
Affordable housing advocates say young workers who remain shut out of the housing market are the collateral damage of policymakers unwilling to make big moves to cool housing prices.
Economists at the Bank of Montreal recently issued a report citing the need to break “market psychology and the belief that prices will only rise further” and “dampen the speculation and fear-of-missing-out that those expectations are creating.”
Several other Bay Street economists have called on governments to do more to tame runaway home prices and the Bank of Canada Governor Tiff Macklem says he sees “worrying” signs in the housing market.
Policy responses to mounting calls have so far been muted.
There are tougher mortgage stress-test rules are set to begin June 1. And though there was a national empty homes tax announced in the April 19 federal budget, as well as funding to build social housing, critics say the measures don’t do enough to tackle the growing problem. Recent budgets for Ontario and B.C.— home to some of the hottest housing markets — did not prioritize housing.
According to Century 21 Millennium real estate broker Bethany King, millennials trying to buy their first home are up against stiff competition.
“The buyers who are able to offer $200,000 or $300,000 over asking are either getting significant help from their parents or they are baby boomers downsizing,” she told Global News. “The boomers bought their homes for $100,000 decades ago and they’re selling them for $1.4 million, so they have the luxury of being able to put in that big bid.”
King says first-timers who don’t have access to “the Bank of Mom and Dad” are up against buyers who have already built up significant equity in their homes.
Realtors, economists and affordable housing advocates all point to the same thing driving bidding wars and climbing prices: a lack of supply. The situation could be exacerbated when immigration, which has stalled during the pandemic, resumes as newcomers look to enter the housing market.
According to Paul Kershaw, founder of Generation Squeeze, which advocates for young workers, the other major factor is an unwillingness to enact policy that would meaningfully bring down prices.
“On the one hand, we’ve wanted an affordable place to call home and on the other hand, we’ve wanted it to be a good return on investment. Those two things can’t hang together for very long because as soon as a home becomes an excellent return on investment, it grows out of reach for what locals earn,” Kershaw told Global News.
Bank of Canada issues warning about overheated housing market
Kershaw says there is too often a focus on whether or not housing is a bubble, when it should be on what he calls an “affordability crisis.” This has a particularly pronounced impact on those who have yet to enter the market.
“Back when my mom started out as a young person in Canada, it took five years of full-time work to save a 20 per cent down payment on an average priced home. Today, across the country on average it now takes 14 years,” he said.
Kershaw says this divide, where the wealthiest in the country benefit from housing price gains and depend on their rise for retirement savings and wealth accumulation, will affect Canada’s ability to create jobs and grow the economy in the long run. He points to an unwillingness to consider measures such as removing the capital gains tax exemption on primary residences – a move that would likely be controversial.
His advice to young people who have seen their dreams of homeownership dashed during the pandemic is not to blame themselves for what is happening around them. In his view, they are collateral damage. They may have to wait it out until homeowners are willing to make concessions.
“We have to change our hearts and our minds about ‘not in my backyard.’ We need to welcome more renters and co-ops in our neighbourhoods,” Kershaw said. “Those policy and cultural shifts need to happen side-by-side. There’s no silver bullet to solving this problem.”
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