The wild swings and market distortions caused by the pandemic, including the resulting increases in the money supply, cash liquidity and inflation, have led to a curious new phenomenon: the rise of the “nepo” homeowner.
These “nepo” buyers — freighted with a term derived from the Latin root signifying “descendant,” but these days more closely identified with the pejorative “nepotism” — rely on family to pay the substantial down payments and monthly mortgage expenses required in the current Canadian housing market reality. Unlike the millennial demographic that became closely aligned with the idea of residing in their parents’ basement for as long as possible, these new nepo buyers actually want to move on with their lives, and hope to purchase a home. Because of stratospheric prices and escalating interest rates, they turn to family not to buy the latest Nintendo, but rather to collect the cash needed for a down payment. A survey conducted earlier this year by Royal LePage showed that six per cent of all Canadian homeowners co-own their property with another party other than their spouse or partner. The vast majority (89 per cent) co-own with family members. Among co-owners, 76 per cent say that affordability was a major motivating factor in their decision to co-own. In the 25 to 34-year-old age group, that number rises to 83 per cent. Some of the co-owners don’t simply invest — they move in. Royal LePage COO Karen Yolevski noted: “Different generations of families living under one roof is not a new phenomenon, but has been growing in popularity in recent years. Census data shows that multigenerational households are now the fastest growing household type in Canada.” This economic evolution is not surprising, given the lack of supply in the Canadian housing market, especially in urban areas. Canada is falling behind in its ability to create affordable homes, with Ontario and British Columbia accounting for two-thirds of the shortfall. With ample supply lacking, homeowners are stretched to the limit. Average mortgage payments in each province consume an estimated 60 per cent of disposable household income. The affordability gap is so great that the Canada Mortgage and Housing Corporation (CMHC) estimates the average home price in Ontario would need to decline from the current $871,000 to $499,000 to lower the affordable ratio to a more comfortable 37 per cent. To make that happen, approximately 1.85 million new homes would need to be built, requiring a 28 per cent acceleration in residential construction, according to the CMHC. Given these realities, seeking help from family members is not just a logical decision for many younger buyers — it’s the only way many of them can hope to own a home. A variety of factors have aggravated the situation, suppressing construction in Canada; including complex permit procedures, other types of regulations and mandates, skill shortages and supply chain disruptions. In addition, there is a wild card in many proposed construction projects: NIMBY, the impulse of some residents to oppose any project unless it is “not in my back yard.” Approximately two-thirds of Canadian adults own a home, which is slightly higher than the U.S. rate, but less than that of the U.K. and the average of all Organization for Economic Co-operation and Development countries. In recent quarters, home ownership has been on the decline, and the renting population is increasing. According to Statistics Canada, the biggest drops in home ownership over the past decade have occurred in Nova Scotia and Prince Edward Island, followed by British Columbia (declining from 70 per cent to 66.8 per cent) and Ontario (where the rate dropped from 71.4 percent to 68.4 per cent). Comments are closed.
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AuthorLarry Weltman is a Customer Service Representative for AccessEasyFunds Limited, or AEF, an Ontario-based firm Archives
November 2022
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