The income-to-home price ratio has made homeownership extremely difficult for young Canadians.
According to NerdWallet, a leading personal finance website that provides in-depth analysis and advice on a range of financial topics, in 2003, the average home cost 5.8 times the typical Canadian’s earnings, but by 2023 this ratio had grown to 10.8 times. Today, the typical house costs over 20 times what the average 25-34-year-old earns, far beyond what’s considered affordable.
This vast income-to-home price ratio has effectively denied an entire generation of young Canadians access to homeownership.
Currently, the housing market is so challenging that young people struggle to afford a home, making their chances of achieving homeownership increasingly slim.
Housing construction is not keeping up with Canada’s rapid population growth. The country’s population has expanded by over 1.2 million in the last decade, according to the latest population estimates from Statistics Canada. But housing stats have averaged just 208,000 units per year nationwide, based on data from the Canada Mortgage and Housing Corporation.
With supply failing to match the surge in demand, home prices have skyrocketed, effectively pricing out many young and first-time buyers. Unless we see a major increase in new home building, the dream of homeownership will remain out of reach for a significant portion of the population.
Children of homeowners are twice as likely to own a home compared to children of non-homeowners, according to a Statistics Canada report. The homeownership rate was 17.4 per cent for children of homeowners, versus just eight per cent children of non-homeowners. This is because the children of homeowners often inherit property wealth or receive financial assistance from their parents, giving them a significant advantage in affording a home. Meanwhile, young people whose families don’t own real estate struggle to save for a down payment, creating a vicious cycle that’s pricing out a huge portion of the younger generation.
According to the non-profit group Generation Squeeze, over 1.5 million Canadians aged 25-34, are now priced out of homeownership in their local markets.
Renting is becoming more common as an alternative, but there are significant trade-offs in terms of building long-term wealth. According to Statistics Canada, the homeownership rate among young adults aged 25-34 has fallen from 55 per cent in 1999 to just 42.2 per cent in 2022. While renting may be a more realistic option for many priced out of the housing market, it comes at a cost.
The National Bank of Canada found the average monthly rent in Canada’s major cities is now equivalent to 43 percent of the typical young adult’s income, meaning a significant portion of their earnings go towards a landlord’s mortgage instead of their own home equity.
Overall, the outlook for young Canadians achieving homeownership appears quite bleak.
The staggering income-to-home price ratio, now over 20 times earnings, has effectively denied an entire generation access to this critical path of building wealth. Housing construction has failed to keep pace with Canada’s surging population, while children of homeowners are twice as likely to own a home, creating a vicious cycle that excludes young people from lower-income families.
It’s time for young Canadians to advocate for policy changes that support affordable housing initiatives, and increased construction to ensure that homeownership becomes a reality for all.