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 | robert.hogue@rbc.com

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

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