More Millennials Renting Instead of Buying
Millennials in Canada are the largest generation in the country compared to other groups of the population, and are one of the key drivers of the housing market.
They are in the prime age range of leaving homes where they were born and raised, and moving into their own abodes. Whether it’s renting or buying a property, Millennials have become a key segment of the housing market. However, a recent survey by KPMG is indicating that for Millennials, owning a home has become a pipe dream.
“The combination of rising house prices, high levels of personal debt and annual incomes that are just a fraction of the cost of buying a home compared with their parents’ generation, is pushing the dream of home ownership out of reach for many Millennials,” says Martin Joyce, Partner, National Leader, Human & Social Services, KPMG.
Key findings of the poll on Millennials, who are between the ages of 23 and 38 and represent the largest population in the country, include:
- 72 per cent of Millennials say their goal is to own a home
- 46 per cent of Millennials say owning a home a pipe dream
- 46 per cent of Millennial homeowners received a financial boost from their parents to buy a home
- 38 per cent believe their house won’t be worth as much in the future
Debt-to-income is a key financial indicator and, for young Millennials, that now stands at 216 per cent, far exceeding the 125 per cent for Gen-Xers and 80 per cent for Baby Boomers at the same age – primarily because of mortgage debt. The KPMG report says Millennials now take an average of 13 years to save for a 20 per cent down payment, while it took their parents just about five years in 1976, according to a Canadian Mortgage and Housing Corporation (CMHC) report.
More and more Millennials are turning to the rental market because of the affordability factor.
For example, in Calgary the average price of an existing home – which the Calgary Real Estate Board says is a typical property on the market – was $423,027 in November. A 20 per cent down payment for that works out to be $84,605, leaving a mortgage amount of $338,422.
Taking a five-year fixed rate mortgage at 2.34 per cent with an amortization period of 25 years, the total monthly payment would be $1,489. According to the most recent RBC Housing Affordability report 38.9 per cent is the proportion of median pre-tax household income required to service the cost of a mortgage on an existing housing unit at market prices in Calgary as of the second quarter of the year, including principal and interest, property taxes and utilities. The single-detached percentage is 42.9 per cent while the condo apartment sector is 23.9 per cent.
CMHC also tracks Equifax data on average monthly mortgage obligations. For the second quarter of this year, the average cost of a mortgage in the Calgary region was $1,540.
Heather Bowyer, Senior Analyst, Economics, for CMHC, says the last rental survey the agency conducted in October 2018 found that the average rent in the Calgary region for a two bedroom property was $1,262.
Bowyer says the choice between rental and homeownership is definitely a very personal choice depending on each individual’s finances and personal opinions regarding lifestyle.
“In Calgary, though, in 2018 we did see the vacancy rates drop compared with 2017 and that’s signaling a little bit of a pick up in demand on the rental side of the market with more individuals choosing to rent. And as well, demographics do play a little bit into what we see happening in the rental market. Our population aged 15 to 24 we generally think of as rental households. If we’re seeing strong growth, population and employment growth, that could contribute a bit to increased rental demand,” she says.
“As well, new immigrants to the area would tend to rent first before moving into the homeownership market.”
The CMHC says factors in a person’s decision to rent include:
- Flexibility in where they live
- Shorter-term commitment to make it easier to move to a new home, neighbourhood or city
- Protection from decreases in property value
- Fewer responsibilities for maintenance and repairs
- Lower upfront costs
- Lower monthly costs making it possible to save money
- A more affordable option for housing
Avenue Living specializes in economical rental housing in 17 markets across the Prairies, with suites that are especially appealing to the workforce housing market. This niche market is geared to a city’s essential workers who are the backbone of every city, making up almost 40 per cent of the Canadian population.