MILLENNIALS WON’T WAKE FROM DETACHED DREAMS
Despite record high prices and big risks, gen Y chasing hot homes, writes Garry Marr.
Millennials are not giving up on the dream of owning a detached home, despite national prices soaring to record levels, buoyed by average prices that routinely reach seven figures in hot markets.
Even in the face of what the Toronto Real Estate Board says is a “troubling trend” in its market, generation Y will not be deterred from their dream home, with 51 per cent of the cohort planning to purchase a detached home in the next two years, according to a survey by the Ontario Real Estate Association.
But planning and purchasing must be two different things, because the barriers to entry to the detached home market in Ontario have never been greater, at least in the city of Toronto where the average detached home sold for just over $1.2 million in July, according to the Toronto Real Estate Board.
Even accounting for the larger geographic region of the Greater Toronto Area — meaning, a trip to suburbia — the average existing detached home sold for an average of $952,983 in July, according to the TREB numbers, released Thursday.
The real estate industry says provincial regulations encouraging density and choking off developable land has created the imbalance between supply and demand in the low-rise market, including detached homes.
“Housing policy is now top of mind for all levels of government. Policy-makers need to be focusing on solutions to the sustained lack of low-rise inventory throughout the GTA,” said Larry Cerqua, president of TREB, in a statement. He refused a request for an interview.
Given the state of the market, what exactly makes this generation — defined in the OREA study as the group born between 1981 and 1992 — think they will actually be able to afford anything but a condo?
“I think what we are seeing in the research, there are a few factors. It’s obviously stage of life, as needs change, your requirement for a home changes,” said Fahed Malik, the director of marketing communications at OREA. “There is a need for a larger home and a detached home can give you that practicality.”
Part of what also drives them is this idea that real estate’s return makes it worth the risk. The survey, which was conducted online by Ipsos between May 31 and June 2 and is considered accurate to within 3.5 percentage points 95 per cent of the time, finds 77 per cent of generation Y thinks real estate is a good investment. A year ago only 70 per cent felt that way.
Why wouldn’t they think real estate always pays off? Property prices have had only one real dip in the GTA over the past 20 years, which is most of their adult lifetime. Even the Great Recession barely impacted prices between 2008-09.
Ontario millennials are hardly alone in their desire for a large, detached home. The demand is just as strong in British Columbia, which has seen the benchmark price for detached homes climb to almost $1.6 million in its largest city.
The provincial government in Victoria won’t let the dream die easily, and last month announced a 15 per cent tax on foreign purchasers in Vancouver in an effort to control prices in a market where the supply of detached housing is finite. Prices are destined to go higher in a market where supply is outstripped by demand, even if you do more to limit that demand.
There are options for that detached home, but they ultimately mean sacrificing something along the way. Elton Ash, regional executive of Re/Max of Western Canada, says that means a resurgence of interest in suburbia.
“The desire to have the dog, the garage and 2.4 kids is strong no matter what generation you are talking about,” he said, pointing out that detached home affordability question is not a panCanadian issue. “I just did a road trip in Manitoba and visited a community 35 kilometres north of Winnipeg and the lot cost was $45,000. But it’s the same result as you move out of city cores, prices to get cheaper and that’s why bedroom communities are getting more popular.”
Living near the city’s downtown means downsizing your expectations. The OREA study didn’t ask people specifically where they would be willing to live to afford a detached home, but it’s now realistic for a person working in Toronto to live more than 100 kilometres away from her job.
The prices continue to drive that message home. Results from the Real Estate Board of Greater Vancouver for July do show detached homes are pretty much unattainable for local residents, but the average attached home, which could include a rowhouse or townhouse, sold for $669,000 last month. That’s clearly a more attainable goal.
The OREA study found the second choice of generation Y buyers, after detached homes, was condo apartments at 28 per cent, followed by semi-detached at 18 per cent and row houses at 13 per cent. Detached homes may be the first choice of that generation, but the reality of the marketplace means the percentages of those other options are going to rise — at least in Toronto and Vancouver.
Policy-makers need to be focusing on solutions to the sustained lack of low-rise inventory throughout the (Greater Toronto Area).