Intergenerational wealth transfer will buoy housing market

by Neil Sharma28 Apr 2019

While activity in the housing market has cooled, it will be spry within a decade.

“There’s an intergenerational wealth transfer coming in the next, probably, 10 years and that will go a significant way towards helping comparatively younger people afford housing in the future,” said Brad Henderson, president and CEO of Sotheby’s International Realty Canada. “They will take that intergenerational wealth and apply it to housing because they believe, and their parents believe, that housing is still a decent investment opportunity, as well as being a great place to live.”

Henderson added that sizeable cohorts are entering their prime earning years and will invariably spend large sums of money on housing.

“Older millennials and younger Generation Xers are starting to come into increased earning capabilities, which make housing affordability more accessible for them.”

For the time being, though, the cost of housing remains prohibitive.

Assuming a 20% down payment at a 3.75% mortgage rate on a 30-year amortization, a recent Zoocasa report revealed that only the top 2.5% of Vancouver’s income earners can afford the benchmark price of a house, and only the upper 25% can purchase benchmark condominium apartments.

But while that curtails demand, prices in the city remain defiantly high. As Henderson explains, expensive urban markets like Vancouver self-perpetuate.

“Royal Bank says people are leaving high-cost markets like Toronto and Vancouver for lower-cost centres, but for everyone who leaves that is younger or in a lower income bracket, there are more who come into that market,” he said. “It’s a catch-22: If you’re not in a market with high-paying jobs, you’re less likely to get a job that will allow you to afford a house. Yes, Winnipeg and Regina have much more affordable housing, but there are lesser employment opportunities. So while income is more in alignment with housing in those marketplaces, a lot of people are seeking those higher paying jobs, therefore, they’re attracted to high value markets.

“Housing affordability is a major challenge in Toronto and Vancouver, but it isn’t the case that they’ll become ghost towns, or even become ‘resort towns’ where rich people come to visit.”

That elucidates why Prairie markets are affordable. In Regina, the top 75% income group can afford the benchmark price of a house, which is $275,900. That’s a massive bargain compared to the benchmark price of $1,441,000 in Vancouver. In Winnipeg, the top 50% could buy a house for the benchmark price of $326,433.


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