December 6, 2012
First-time homebuyers face continuing affordability problems
Ottawa’s action to reduce mortgage amortization periods to 25 from 30 years particularly affects younger people looking for their first home
An associate told me recently that he, his wife and two young children, after living for many years in a rental apartment, finally moved into a detached home in an established neighbourhood. Here’s the thing, though. David, who didn’t want his last name used, just turned 40, and the home is owned by his wife’s parents, who continue to live there and retain ownership of the property.
The in-laws have been mortgage-free for years, but they don’t have much left from their government pensions after paying property taxes, utilities, medications and assorted other household expenses. David and his wife will not pay rent, but they will cover most expenses, making the parents’ finances much easier to manage. David also takes care of the maintenance of the home and garden. Win, win.
Everyone in the three-generation family gets along quite well. The children, in particular, are loving the arrangement. Actually, I’m envious, wishing I had access to our granddaughters on a daily basis. The 2011 Canadian census found that 42 per cent of young adults aged 20 to 29 still live in the parental home. This compares with 32 per cent in 1991 and 26 per cent 30 years ago. Twelve per cent of the 30-to-34 age group still live at home. They are being referred to as the Barnacle Generation.
Some of the young folks say they are embarrassed about their housing situation, and relationships with parents can be strained sometimes. Parents were concerned the living arrangements prevent their children from forging independent adult lives – somewhat akin to arrested development. In Britain, more than 1.6 million young adults between the ages of 20 and 40 are living with parents because they cannot afford to own, or even rent, their own homes or apartments.
A survey conducted at the 18th annual seminar for first-time home buyers — organized by the Greater Vancouver Home Builders’ Association and presented by the Homeowner Protection Office, Branch of BC Housing — revealed that housing affordability in Metro Vancouver is a lingering problem. The survey results, tabulated by Canada Mortgage and Housing Corp., are as follows. They are rounded to the nearest percentage and I included only the top two or three responses to each question. Two hundred and 70 prospective first-time buyers participated in the survey.
- 36 per cent of respondents cited high housing prices as the major obstacle preventing them from buying; 19 per cent said insufficient down payment; 12 per cent said economic uncertainty.
- 39 per cent live with parents; 34 per cent rent accommodations.
- 70 per cent of respondents will be purchasing their first home with a partner/spouse; 18 per cent will be buying on their own; 10 per cent indicated they will be buying with a family member.
- 41 per cent said they plan to buy a home within a year; 27 per cent said within six months; 16 per cent said within the next two to three years.
- 26 per cent plan to buy a townhouse; 25 per cent want to buy a single-detached home; 22 per cent indicated their preference was a low-rise condo; 18 per cent said they want to buy a highrise condo.
- Surrey and Langley were the municipalities of choice for 30 per cent of the respondents, while Vancouver was next at 17 per cent. Six per cent preferred to buy a home in Burnaby or New Westminster. The rest were scattered throughout Metro Vancouver and adjacent regions.
- There was no clear preference on home size, although only 12 per cent of the respondents indicated less than 800 sq. ft; 18 per cent said 800 to 1,000 sq. ft; and 20 per cent said 1,000 to 1,200 sq. ft
- 45 per cent needed two bedrooms, while 32 per cent wanted three bedrooms.
- 14 per cent indicated the maximum price they intend to pay for their first home is less than $300,000; 26 per cent said between $300,000 and $350,000; 15 per cent said $350,000-$400,000.
- 25 per cent of respondents plan to use a down payment of five per cent; 25 per cent have 10 per cent down; Eight per cent have 15 per cent down; 25 per cent have 20 per cent down.
- 68 per cent said they would use a realtor recommended by family or friends. Eight per cent said they would find a realtor through online research, and only two per cent said a realtor’s advertising presence would influence their decision.
- 86 per cent of the respondents believe a builder’s reputation will influence their decision to buy.
- 48 per cent said they will use their RRSPs towards the purchase of their first homes.
- 93 per cent said they would check the Homeowner Protection Office’s online registry for information on whether a new home has home warranty coverage.
- 10 per cent of the respondents were aged 20-24; 52 per cent were 25-34; 18 per cent were 35-44. 12 per cent were 45-55.
Since this column is about first-time homebuyers, I must comment on federal Finance Minister Jim Flaherty’s changes to the rules governing federally insured residential mortgages, including a reduction in the maximum amortization period from 30 to 25 years. It is not clear that a tightening of mortgage rules helped Canadians to manage their debt. What is clear is that the shorter amortization period has reduced housing demand by eroding affordability.
For those who would otherwise have selected the 30-year amortization, it will take additional income each month to service new mortgage debt with the 25-year plan. Some buyers will not qualify and this will disproportionately affect younger first-time homebuyers. In June, Flaherty said he would pay close attention to the results of his policy. The homebuilding industry asked him to review the impacts of his action by mid-October. It is now December and the industry, which generates many thousands of jobs and billions of dollars in economic activity, hasn’t heard a peep from Ottawa.
In addition to reviewing the amortization period, if Flaherty and his government really want stability in housing markets, they should take immediate action to work with all levels of government to reduce government-imposed fees, levies, taxes and development charges on new homes, including adjustments to federal GST thresholds for the New Home Buyer Rebate. First-time buyers in B.C. can take advantage of an exemption on the provincial property transfer tax, and a one-time bonus payment worth up to $10,000 on the purchase of a newly constructed home. The latter program expires on April 1, 2013.
Finally, Vancouver-area pundits predict there is a sales shift to moderately priced homes, and a buyers’ market will continue until mid-2013. There is no assurance interest rates will remain low through 2013. The bottom line is it seems to be a good time to consider buying a new home.
Peter Simpson is the former president and chief executive officer of the Greater Vancouver Home Builders’ Association. Email firstname.lastname@example.org