Only the Rich Can Afford Average Homes in Toronto and Vancouver
Credit to Author: Anne Gaviola| Date: Thu, 25 Apr 2019 21:18:16 +0000
If you’re hoping to buy an average house in Vancouver, then you better be among the richest 2.5 percent of the population with annual earnings of at least $205,475, according to a new report. In Toronto, you also have to be among the elite earners, taking home a minimum of $124,554 a year for a “typical” (not even a really fancy) detached home.
That’s OK though, because most people’s starter homes in Canada’s most expensive cities are condos. While it’s true that they don’t cost as much, the report by real estate platform Zoocasa—based on information from Statistics Canada and local real estate boards—shows that you still have to be kind of rich to buy a run-of-the-mill condo apartment in the hottest markets. Assuming you get a competitive mortgage, buying an average condo in Vancouver requires you to make at least $93,527. In Toronto, you need to make a minimum of $74,476.
None of this is surprising, exactly, but seeing affordability spelled out in terms of pay might be a wake-up call to some. “You have to be within the top 25 percent of earners and for millennials and Gen Z, if you’re fresh out of school or in your 20s starting your career, you may have precarious employment—which is an emerging trend for this age group. It’s very unlikely you can get into the market,” says Zoocasa’s managing editor Penelope Graham.
For the youngest buyers who aren’t already elite earners, that often means relying on the Bank of Mom and Dad (or grandparents). Or getting a place that is well below “average.” For those who remain committed to owning instead of renting but aren’t making piles of money, don’t have family help, or don’t want to obliterate their standards, that increasingly means getting out of Toronto and Vancouver, to cities that are close enough to commute but far enough to be significantly more affordable.
According to an RBC report which is also out today, Ontario cities including Hamilton, St. Catharines, Oshawa, Kitchener-Waterloo, Guelph and Barrie are seeing in influx of millennials who are likely looking for a break from steep Toronto prices. In BC, places including Abbotsford-Mission, Chilliwack and Victoria are getting Vancouver’s millennial cast-offs.
Graham calls it the “drive until you qualify” migration which means “young people are leaving the urban centres, moving into the far-flung suburbs and trading that home affordability for a much longer commute. These are all trends we’re seeing fuelled by lack of affordability in certain markets.”
It makes sense when you consider that in Toronto, median household income grew 30 percent between 2006 and 2018 while average home ownership costs jumped a mind-boggling 131 percent.
A similar trend played out on the lower mainland, with average home prices in Vancouver skyrocketing 133 percent between 2005 and 2015. During that timeframe, household incomes only grew by 11.2 percent.
That gap between what it costs to own or buy a home, and what people are making is still huge according to Graham. “Home prices have outpaced wage growth, both in Toronto and Vancouver, even though we’ve seen these markets recede in their ferocity. Over the past two years, we’ve seen double-digit value increases in both of these markets, well outstripping inflation, leaving wages in the dust.”
Because things aren’t getting much better, you would expect to see a kind of hollowing out of young people from the country’s two hottest markets. But that’s not exactly how it’s playing out. According to RBC’s analysis, for every person between the ages of 20 and 34 who is leaving hubs like Toronto and Vancouver for a commuter city, they’re being replaced by at least seven millennials from another province or from outside the country. This is happening in Vancouver and Toronto as well as Montreal, which RBC Senior Economist Robert Hogue describes as “magnets for young, mobile talent,” thanks in part to “thriving economies and cultural scenes.”
Hogue points out that, based on Canada’s current immigration targets—which are set to increase from 330,000 this year to 350,000 in 2021—this trend will likely continue. His report states that “the lion’s share” of those newcomers will end up in Toronto, Vancouver and Montreal.
Something will have to give though, with this exodus of young people from the most expensive hubs, and an increase in the addition of new adults under the age of 35 from other parts of the country and outside Canada. Even though recent policy measures—along with other factors—have cooled Vancouver and Toronto’s housing markets, home ownership remains beyond the reach of most young people.
Hogue writes that we should “expect a greater proportion of [millennials] to rent in the future.” The question is, are these major centres ready for more young people seeking rentals, and remaining renters for much longer than previous generations? With the squeeze already on in Toronto and Vancouver’s rental markets (as well as Montreal’s downtown and plateau area), which are all seeing historically low vacancy rates, most housing advocates say affordability is an urgent issue, and unless something drastic happens, it’s going to get way worse.
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