Many Canadians are renting for longer than they have in the past, due to factors including, rising housing costs, stagnant wages and freedom associated with renting. At Avenue Living, we invest in workforce housing, an asset class which caters to a particular subset of the population – those who are overqualified for affordable housing but may not yet be able to afford to purchase average market-rate homes. Among Canadians, 28 per cent live in some form of rental housing and a large percentage of those are Millennials.
Millennials have been at the centre of media attention for many years, and as they transition from post-grads to making up the bulk of the workforce, they are faced with a whole new set of challenges. Individuals born between 1981 and 1996 were labelled “Millennials” because they would join society as adults around the turn of the millennium. They now represent the largest generation in the country, accounting for 27 per cent of the population according to Statistics Canada.
Millennials are also the most educated generation, as the current job market demands higher training, but also offers the opportunity for the highest returns. However, what comes hand-in-hand with increased education? Debt. With rising tuition, higher costs of living and stagnant incomes, Canadian Millennials are racking up debt like no generation before them. According to KPMG, the average debt-to-disposable income ratio in Canada was almost 87 per cent in 1990, and more than 175 per cent at the end of 2018 — a trend raising the Bank of Canada’s alarms about the country’s economic vulnerability. Add in looming student loans plus a newly mortgaged home, and many Millennials find themselves living paycheque to paycheque.
So why do Millennials rack up such high personal debt without knowing when (or if) they will be able to pay it off?
The answer is simple: the American Dream.
David Macdonald, senior economist at the Canadian Centre for Policy Alternatives (CCPA) explains that this unfortunate financial situation is mostly due to timing. Millennials are, “the cohort that graduated with record debt levels due to climbing tuition fees and are faced with a real estate market that requires dramatically more debt than it did even a decade ago.” People who bought property before the late 1990s are the ones who benefited from the large jump in home prices, his research shows.
Due to their success in the market, parents of Millennials, most often the Baby Boomer generation, see homeownership as the ultimate road to financial gain — it worked for them, so it will work for their children too. This ‘dream’ has led many Millennials to sign up for mortgages they can’t afford, adding to their ever-increasing personal debt from student loans, credit cards, the list goes on. KPMG reported that the debt-to-income ratio for young Millennials is as high as 216 per cent, while it was 125 per cent for Generation Xers at the same age (between 23 and 38), and 80 per cent for Baby Boomers.
From societal pressure, guilt from family members and envy that Millennials feel for other homeowners, they continue to accumulate debt in the hopes of achieving this lifelong goal, even if they’re sacrificing future retirement savings in exchange for owning a home. KPMG reports that 72 per cent of Canadian Millennials say that owning a home is a goal, but 46 per cent say that doing so in the near future is a pipe dream. On average, Millennials are taking 13 years to save for their 20 per cent down payment, while it took their parents only five years in 1976, according to Generation Squeeze.
This trend has been exacerbated by the COVID-19 pandemic, with real estate prices in many Canadian cities climbing to all-time highs. According to a recent poll from Royal Bank of Canada, 62 per cent of respondents saying they expect the majority of people will be priced out of the market over the next decade, with 36 per cent stating they have given up on ever buying a home.
This financial landscape leaves us with two conclusions for Millennials’ future living situations:
Millennials are renting for much longer than their parents’ generation in order to save up before buying their first home, therefore elongating their renting years.
Some Millennials will choose to rent long-term and never buy a home, building their wealth through investments, stocks, and other avenues in order to avoid homeowner costs, like a mortgage, accrued interest, property tax, repairs, etc.
Whether Millennials choose to rent long-term or eventually buy a house of their own, this trend of renting for longer means a tightening of the rental market and the potential for higher occupancy for real estate owners and investors. Millennials need comfortable, stable, affordable rental properties now — and in the future — that they can call home in this narrowing market. If this generation is renting for upwards of 13 years before buying their first home (if ever), the need for ‘home-like’ rentals will rise. However, the biggest obstacle to overcome will be the ‘American Dream’ mindset of owning a home to feel successful.
Buying isn’t always the right decision, despite what the older generation might say. Depending on their desired lifestyle, finances, future goals and dream living space, renting long-term can be a better option. Bridget Casey compares the cost of buying and renting the same Calgary home over the long-term, only to find that the cost would be about equal once you take into consideration repairs, property tax and interest accrued when buying, in opposition to investment opportunities for those with more capital when renting. Therefore, this age-old belief that buying property is always a safe option is no longer true. Renting can be a long-term solution to living a happy, prosperous, financially stable life.
With this generation extending the rental period and considering long-term rentals as a financial plan, this opens up the opportunity for multi-family owners and operators to step in and offer solutions. We understand the importance of quality construction, neighbourhood diversity and ever-changing societal trends, responding to what people need and when in real-time. Avenue Living’s focus continues to be on providing comfortable, affordable workforce housing.
We will continue to invest in safe, accessible properties with individuals, couples, and families in mind so that we can provide affordable solutions for those looking to rent long-term, giving them the value they desire without the responsibility of homeownership.
We’ve seen the trend of renting long-term grow over the years, and we’re working to stay ahead of the curve by accommodating the diverse needs of renters with all kinds of lifestyles, family situations, and ambitions.
This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at www.alamstg.wpenginepowered.com for additional information regarding forward-looking statements and certain risks associated with them
