Equity in a home means a person has options, such as leveraging that equity to take out a loan for another home, or to launch a business.DARRYL DYCK/The Globe and Mail
Young Vancouver homeowners are faring far better than their counterparts in other cities in one key aspect: owning their homes outright.
In the city of Vancouver, a surprising 19 per cent of homeowners between 25 and 34 own their homes clear title, without a mortgage, according to census data. The national average is 6.4 per cent. Toronto is second place, with 11.7 per cent of that home-owning age group living mortgage-free, according to Statistics Canada data compiled by Andy Yan, director of Simon Fraser University’s City Program and adjunct professor of the school’s Urban Studies program. That 19 per cent represents 2,485 young homeowners. It includes not just mortgages, but any debts that are secured to the dwelling, such as home-equity lines of credit. Only 8 per cent (360) of the millennial age group of homeowners owned a detached house, but one-third of them owned their houses outright. The median value of those mortgage-free homes was $2.5-million.
The finding is counterintuitive when you consider how difficult it is to own a home outright in Vancouver, never mind for a young person just starting out in their career. What it does point to is the considerable money that’s flowed into the city, creating a division that’s not generational so much as it is wealth-based, Mr. Yan says. Vancouver has a wealthy segment of young homeowners. (The data only considered mortgage payments, and did not take into account other debts.)
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“This is a bit of an unexpected statistic,” Mr. Yan says. “Vancouver is nearly double the percentage of Toronto’s mortgage-free young home owners. It illustrates the wealth – whether foreign or domestic that is flowing into and shaping the city.”
Josh Gordon, assistant professor in SFU’s School of Public Policy, says that it demonstrates the intergenerational wealth transfer in pricey urban areas.
“The main takeaway is that in Vancouver, you have a lot of parents that are buying real estate outright for their kids,” Mr. Gordon says. “The result certainly isn’t because of affordability in Vancouver, of course, so it must connect at least in part to that. Parents are using their substantial equity gains to help their kids buy housing. In other cities that are more affordable, parents don’t tend to do that, or don’t need to do that. It’s notable that the second city in the chart is Toronto, which is the second most unaffordable market.”
Mr. Yan looked at 2016 data from a Statscan category called the “primary household maintainer,” which collected responses from the person responsible for paying all the major bills for the household, including the mortgage. He found that 47 per cent of Vancouver homeowners in all age groups own their homes outright. In older age groups, the degree of outright ownership naturally increased. For example, of all 65- to 74-year-olds in Vancouver, 73 per cent own homes without a mortgage, which is higher than the national average. In Canada, 69 per cent are mortgage-free.
That may sound positive, he says, but you have to consider the 31 per cent in that retiree age group that still hold mortgages.
The same dual perspective can be applied to the situation for millennials, who are represented in the 25- to 34-year-old age group. While roughly 20 per cent of Vancouver millennial homeowners have their homes paid off, the percentage that actually own homes is drastically lower than the national average. Only 22 per cent of that age group has entered the real estate market in Vancouver – compared with 48 per cent countrywide. Home ownership is still a natural progression when people get secure jobs and couple up, and we see that outside of Vancouver and Toronto, Mr. Yan says. But in Vancouver particularly, they feel shut out by soaring property prices and increasingly rigorous lending rules that have made them feel it’s impossible to own a home. Many of millennial age have accepted that they may be renting for a lifetime. Their frustration was shared in a Globe and Mail poll from last June, called Voices From the Housing Market. It showed that 40 per cent of 18- to 37-year-olds believe their generation is “mostly or much worse off than their parents.”
Mr. Yan agrees that the high percentage of mortgage-free youth in Vancouver is another example of the city’s freakishness. Vancouver is an outlier where housing prices and incomes have decoupled. Instead, wealth, not income, has driven prices.
“It confirms that we have a lot of young renters who can’t afford to buy,” Mr. Yan says. “But when those who are able to buy do buy, relative to their Canadian peers, a good chunk of them own outright.”
Equity in a home means a person has options, such as leveraging that equity to take out a loan for another home, or to launch a business.
Paul Kershaw is associate professor in University of B.C.’s School of Population & Public Health, and he’s founder of Generation Squeeze, a group that advocates for better government policy to help the under-40 age group, beleaguered by low housing affordability. Mr. Kershaw has looked at the issue using StatsCan’s Survey of Financial Security data and Survey of Consumer Finance data. He found that home ownership rates are dramatically down for the under-35 age group in B.C. in the past four decades than the national average. Rates in B.C. are down 35 per cent, compared with 14 per cent in Canada, Mr. Kershaw says. All data intersect to show similar findings.
“First, B.C. has more satellite families parking wealth with their young adult kids to minimize their taxes owed in Canada and/or abroad,” he writes in an e-mail. “Second, many older British Columbians have gained tremendous wealth in their homes by comparison with the rest of the country, and use some of that wealth to help out their children in the B.C. housing market. Also, it’s been a great investment. And third, B.C. is attracting a disproportionate share of very high net wealth younger adults, with the means to pay off their homes quickly.”
Realtor Alex Jopson, who is 36, has a lot of young clients, and he gives credit to Urban Futures data that marketer Bob Rennie has given in his Urban Development Institute speeches the last few years, regarding generational wealth transfer. Mr. Rennie has said that the staggering amount of home equity that shifts to the younger generation needs to be considered along with income.
“The top 20 per cent of last year’s sales has nothing to do with local incomes, and more to do with China and rich guys with their massive home equity,” he said in his 2015 speech. “Of 642,000 household home occupiers in Greater Vancouver, they are sitting on $311-billion in wealth – just to let you know the amount of tax-free money that’s floating out there, and a sense of entitlement that might come with a lot of their children … Our aging baby boomer population over 55 is sitting on 71 per cent of Greater Vancouver’s clear title property. That’s 193,000 homes.”
In 2014, seniors transferred $3.2-billion of home equity wealth to their family. In 2024, he forecast it to be more than $5-billion in wealth transfer – and a lot of that money will help with someone’s down payment.
“I have some clients that have bought outright in the last five years, but the majority of that was family wealth,” Mr. Jopson says.
“Obviously, it doesn’t hurt that the market shot up quicker here than anywhere else, and if their parents invested properly, they can [buy outright].
“I think there are a lot of hard-working individuals. I don’t want to say all my mortgage-free clients had family members who bought for them. I do have a lot of clients in that age bracket in the tech industry who are engineers and in the movie industry who do well for themselves.”
Realtor Greg Dent, who also has a lot of young clients, agrees that the hefty percentage of clear-title millennial age homeowners is a symptom of the region’s accumulated real estate wealth over the past few years. It’s the typical Vancouver story, he says. West-side parents sell their $5-million house and their kids buy one-bedroom condos outright.
“That’s the only way,” Mr. Dent says. “It’s tougher and tougher for young people to get into the market, but statistically, so many wealthy people have made a substantial portion of their wealth from real estate. The big driver has been the down shifting in money from generation to generation.”
Says Mr. Yan: “At the end of the day, it seems that being able to choose the right parents is the shortest path to home ownership in the city of Vancouver.”