FOCUS ON CANADA’S HOUSING MARKET Home ownership rates … · 2012 2016 Debt as a % of disposable...
Transcript of FOCUS ON CANADA’S HOUSING MARKET Home ownership rates … · 2012 2016 Debt as a % of disposable...
FOCUS ON CANADA’S HOUSING MARKET February 28, 2019
No magic bullet: The solution to millennials’ housing plight is better supply
Federal Finance Minister Bill Morneau is reportedly poised to unveil new budget measures to help more Canadian millennials become
homeowners. While that generation does face housing-related challenges, especially in some larger and more expensive Canadian
cities, we urge him to tread carefully. On the surface, ideas like relaxing the mortgage stress test, extending the maximum amortiza-
tion period for insured mortgages, or increasing the amount of RRSP take-out for a first home down payment might bring short-term
relief to buyers. But they do nothing to address what we believe is the root of Canada’s housing woes: gaps in the mix of housing op-
tions in some of Canada’s larger markets. Meanwhile, the measures won’t address the issue of high household debt, and may actually
inflate home prices.
We take issue with the notion that Canada has a home owner-
ship problem in the first place. On average, more than 40% of
Canadian households under 35 years of age own their own
homes. And the proportion of all Canadian households who
own a home is one of the highest among advanced economies.
Even Toronto and Vancouver—the least affordable markets in
the country—rank near the top of global cities on home owner-
ship and have home ownership rates that are about double
cities like Paris and Berlin. And despite a notable decline in the
past decade, the ownership rate among younger households
(Canada’s millennials) remains not only high historically in Can-
ada but also compared to other countries, including the U.S.
The decline in the home ownership rate in recent years is a
symptom of a larger issue—the lack of housing options that
Robert Hogue | Senior Economist | 416-974-6192 | [email protected]
55.7
60.1
60.2
62.6
63.4
63.7
66.5
66.6
67.3
67.8
69.6
69.9
70.0
70.2
70.3
73.0
10 20 30 40 50 60 70 80
Montréal
Halifax
Québec
Victoria
US
Vancouver
Toronto
Ottawa
Winnipeg
Canada
Edmonton
Regina
St. John’s
Saskatoon
Saint John
Calgary
% of households that are owners, 2016
Ownership rate: major Canadian cities
Source: Statistics Canada, RBC Economics Research
73.0
66.563.7 63.5 62.4 61.0
59.155.7
53.551.1
49.2 47.7 47.544.6
37.233.2
0
10
20
30
40
50
60
70
80
Home ownership rates for major global cities
Source: Statistics Canada, Australian Bureau of Statistics, US Census Bureau, UK Statistics Authority, Statistics Japan, Statistisches Bundesamt, Insee, RBC
Economics Research
Owner households as % of total households
27.4
27.8
32.1
34.5
35.9
37.1
38.2
38.9
43.1
44.1
44.5
45.0
47.7
48.0
50.2
50.6
10 20 30 40 50 60 70 80
Victoria
Halifax
Montréal
US
Vancouver
Québec
Ottawa
Toronto
Canada
Saint John
Winnipeg
St. John’s
Regina
Edmonton
Saskatoon
Calgary
% of households that are owners, 2016
Ownership rate: households aged under 35
Source: Statistics Canada, RBC Economics Research
FOCUS ON CANADA’S HOUSEHOLD DEBT | MARCH 26, 2018
2RBC ECONOMICS | RESEARCH
2
FOCUS ON CANADA’S HOUSING MARKET | February 28, 2019
ordinary Canadians can afford in some of our country’s larger
markets. Let’s treat the source of the problem, not its symptom.
That won’t happen with measures that boost demand or in-
crease buyers’ purchasing budget but do nothing to address
housing supply gaps. Indeed, these measures on their own are
likely to inflate home prices. So any near-term benefits to buy-
ers could be quickly reversed by a loss of affordability arising
from higher property values—an outcome that would pose a
challenge for subsequent age cohorts trying to break into the
market. And let’s not forget the impact on household debt—a
top vulnerability for our economy. Any new measures that ulti-
mately increase household borrowing could only make the ex-
isting household debt problem worse.
In our view, the longer-lasting remedy to Canada’s affordability
crisis lies first and foremost on the supply side of the equation.
That’s something that both CMHC and the Bank of Canada
have recognized. What millennials in Vancouver and Toronto
really need is more inventory of homes they can afford, and a
better mix of housing options—be it to own or rent. Solving the
supply issue isn’t the federal government’s responsibility alone
but requires a concerted effort across all levels of government.
At the very least, the collective goal should be to remove barri-
ers (regulatory, administrative or otherwise) inhibiting home
developers and builders to respond quickly to the demand for
new housing—especially when that demand is rising rapidly. A
more nimble and responsive supply side of the market would go
a long way to addressing the needs of buyers on a more permanent basis. If Minister Morneau’s heart is set on doing something on
housing in his budget next month, he would do well to focus on supply issues and let the home ownership rate fall where it may.
2
64.363.8
68.8
63.4
60.3
61.8 62.1 62.162.6
63.6
65.8
68.4
69.0
67.8
54
56
58
60
62
64
66
68
70
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
United States
Canada
Source: Statistics Canada, US Census Bureau, RBC Economics Research
Households that are owners as % of total households
Home ownership rate: Canada and US
2011 National Household Survey
34.5
58.6
69.3
75.0
78.8
43.1
66.3
73.376.3
74.6
0
10
20
30
40
50
60
70
80
90
Under 35 35–44 45–54 55–64 65 and Over
United States
Canada
Source: Statistics Canada, US Census Bureau, RBC Economics Research
Households that are owners as % of total households, 2016
Home ownership rate by age cohort: Canada and US
35.7
43.243.9
42.041.3
40.2
40.6
45.2
46.9
43.1
41.2
39.6
37.8 39.1
41.2
42.6
37.7
34.5
30
32
34
36
38
40
42
44
46
48
50
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
United States
Canada
Source: Statistics Canada, RBC Economics Research
Households that are owners as % of total households
Home ownership rate: households aged under 35
2011 National Household Survey
218 219
181
145
89
0
50
100
150
200
250
Less than 35 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and over
2012 2016
Debt as a % of disposable income
Debt-to-income ratio by age of household: Canada
Source: Statistics Canada, RBC Economics Research
The material contained in this report is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authoriza-tion of the copyright holder in writing. The statements and statistics contained herein have been prepared by RBC Economics Research based on information from
sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This publication is for the infor-
mation of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.
®Registered trademark of Royal Bank of Canada.
©Royal Bank of Canada.