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People may point their finger at Baby Boomers – those born between 1946 and 1964 – for the high prices and low supply in Canada’s housing market. But how are Boomers at fault, and how fair is the blame?
An article published in January 2022 in the National Post pins the blame for the “breaking of Canada’s real estate market” on an increasing amount of “aging in place” among Baby Boomers. And it wasn’t the only article of its kind. In July 2021, an editorial in the New York Times floated the same idea that, because they were not “letting go” and were holding the largest generational real estate wealth in history.
Last month, a note from Barclays stated that more U.S. Boomers are responsible for creating more households, and putting pressure on housing demand – challenging the theory that an ageing population would require fewer homes.
Boomers Are Getting Older – And Are Aging in Place
In Canada, the motivation for keeping the house may be different than past generations, suggests the Engel & Volkers real estate report in the National Post article: “Canada’s record-low supply of real estate is being compounded by an emerging trend: Baby Boomers who won’t let go of their homes.” The article went on to state that, traditionally, seniors used to sell their family homes and downsize or move into retirement communities. Now, Boomers are breaking with tradition and aging in place.
The word “traditional” is problematic, observes Daren King, an economist at National Bank of Canada Financial Markets. “We blame them [Boomers] for staying in their homes. But it’s the case with any generation, people will stay as long as possible in their home.” Also, “traditionally”, only two generations ago, many old people stayed in the same home all their lives and stayed in it to their death as their oldest child moved in with them.
An aspect the argument misses is that older people are often encouraged by government programs to stay in their homes as long as possible. For example, “if you’re a senior in British Columbia, you can defer house taxes and have them paid only at your death in your succession,” says Steve Saretsky, a Vancouver realtor and blogger. In Quebec, seniors benefit from countless tax breaks for home maintenance expenses, and at-home medical services are aimed specifically at keeping them in their houses as long as possible.
A key difference now is that “before people died in their home at 65, now it’s at 95,” points out John Pasalis, President of Realosophy Realty.
Are Boomers Buying Up All the Houses? Not Really.
For the Barclays report, the reason why things are so bad is the exact opposite: the Boomer generation can’t stay in place and so, Boomers are scooping up a majority of houses, accounting for most household formation. The authors recognize property shortages and mortgage lock-ins but write: “Although these are exacerbating influences, we think the more fundamental driver is a lift in housing demand from the aging population. (…) As a given household head ages, the size of the household (in terms of people) tends to become smaller and smaller, with children moving out and couples separating because of divorce or death.”
Heads of households driving up demand for homes may not be the only variable, however, as the U.S. lacked between three and five million housing units at the end of 2022, according to Brian Bernard, Director of Industrial Equity Research at Morningstar, and Canada lacked 1.8 million, according to Jean-Pierre Perrault, Chief economist at National Bank of Canada.
Also, while the Barclays thesis may apply to the U.S., it might be a different case for Canada. “In my experience, we are not seeing much purchasing activity from those over 65 years old,” Saretsky says. Apart from cases of divorce, most people who leave a home don’t add a household, points out Pasalis, they only shift from one house to another one, freeing up for sale a previous house in the process. It is a zero-sum operation.
Immigration, Lack of New Housing Construction, and Zoning are Problems Too
“I think there’s a lot of blame to go around, and I wouldn’t blame the Boomers specifically, Saretsky states. “It’s quite a stretch to say it’s the Boomers’ fault,” chimes in Pasalis. Indeed, blame can be levelled at many other “culprits”.
“Construction is simply not keeping up,” National Bank’s Daren King reminds us. The bank estimated the shortage at about 1.8 million units two years ago, but the Canada Housing Mortgage Corporation presently sets it at 3.52 million units.
While there are so few houses to go around, the Canadian government is allowing high levels of immigration. “There were 100,000 more people in Canada last month, 95% of that due to immigration, King notes. That’s the equivalent of France’s immigration for one year, and it has added one million to Canada’s population in the last year. The demographic growth is simply too strong for the availability of housing.”
King also points out the very low productivity of the home building industry, where automation and the offer of prefabricated homes are lacking.
Also, there are many regulatory barriers to home building, note Pasalis and Saretsky. For example, “in 66% of Toronto’s geographical coverage, you can only build semi-detached or detached houses,” Pasalis points out. Some blame for this can be laid at Boomers’ feet, Saretsky recognizes. “They have certainly been more vocal in objecting to development and blocking it,” but this is only a small part of a much larger problem.
Recipe for Disaster in Canadian Real Estate
Other parts Saretsky lists as follows: “Bureaucracy, excess immigration that is not sustainable, central banks that kept interest rates near zero for years and a banking system that allowed people to borrow seven times their revenue to buy a house and led to a borrowing binge...”
Blaming Boomers is more scapegoating than rational analysis. “I think old people are just working within the boundaries of the system they’re in,” Saretsky concludes.
