If you suspect your parents and grandparents had an easier time buying a house than you, a new study from a University of Ottawa professor says you’re probably right.
The amount of work time it takes for a Canadian to buy a typical home has more than doubled since the 1970s, economics professor Marc Lavoie concluded in the study.
“Residential properties, with the exception of the 1988-1991 period, are now clearly less affordable for middle-class Canadians than they were for the last five decades,” he wrote.
Chart: Marc Lavoie
It now typically takes the equivalent of 420 to 450 weeks of work time, at the average weekly rate, to own a home when buying one with a mortgage. As recently as 2000, it only took around 300 weeks of work. And until the mid-1970s, it took less than 200 weeks.
“No wonder so many young prospective buyers, especially those in major cities, feel that owning a residential unit is more like a long-distance dream,” Lavoie wrote.
In weeks worked, cash prices are the worst they've ever been
The last time it took this long to pay off a mortgage on a house was the late 1980s and early 1990s, when Canada arguably experienced a housing bubble that saw house prices more than double in a short period of time.
That bubble burst when the Bank of Canada sharply raised interest rates in order to fight inflation — something that is extremely unlikely to happen today.
In terms of cash costs for buying a house, things have never been this bad. Those buying a house in cash today require the equivalent of 400 weeks of work today to pay it off, compared to 184 weeks in 1984.
Chart: Marc Lavoie
Lavoie notes it’s not just price growth that accounts for the longer time it takes to own a house — homes have been getting bigger over the years.
“Newly-built houses in 1975 had on average 1,075 square feet; in 2013 they had about 2,000 square feet,” he wrote.
“Whether current households suffer from inter-generational inequity depends on whether one believes that the average size of houses is a free individual choice or … is being imposed by the construction industry and society more generally.”
“No wonder so many young prospective buyers, especially those in major cities, feel that owning a residential unit is more like a long-distance dream.”— Marc Lavoie, University of Ottawa
Lavoie argues the government has a role to play in helping Canadians afford homes — in the form of policies that grow wages.
Today’s low mortgage rates “do not compensate enough … for the high cash cost of purchasing a dwelling in Canada today,” Lavoie wrote.
“Pro-growth fiscal policies that could eventually lead to faster growth in wages, without interest rate increases, would further help in bringing mortgage costs towards cash costs.”
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