Why people give up renting to buy homes: It all comes down to demographics

See the complete article in The Financial Post

Demographics explain two-thirds of everything, contends David Foot, Canada’s foremost demographer and a bestselling author.

Homeownership is no different. At a certain point in their lives, most individuals, responding to demographic triggers, give up renting for owning.

Younger adults under the age of 30 are more likely to rent than to own. But something happens at 30, and the majority of those above that threshold are owners.

Understanding the demographic factors that determine housing demand is critical for public policy, and construction and mortgage finance.

Why is 30 a magic number when it comes to homeownership?

A series of life-cycle events and a natural progression in age and income enable drastic changes in how and where we live. Settling down with a spouse or partner, starting a family or starting to think about it, and earning enough to save for a down payment are discrete developments that influence the homeownership decision.
The relationship between household income and homeownership is quite straightforward. Census data reveals that higher income earners are much more likely to own than rent. Stated differently, homeowners have significantly higher incomes in Canada than those who rent.

However, when we mix location with income, differences emerge.

Consider that most Canadian households earning under $30,000 are renters. The same is true for Vancouver. However, in Montreal most earning under $60,000 rent, pointing to the unique housing stock and taste preferences where renting is a preferred choice for most households.

Settling down with a spouse or partner, starting a family or starting to think about it, and earning enough to save for a down payment are discrete developments that influence the homeownership decision. Luke Hendry/Belleville Intelligencer/Postmedia Network files

At the same time, in cities where housing prices have increased out-of-step with incomes, the transition to homeownership has been delayed by a few years.

Statistics Canada figures that break down the owner/renter divide by age cohort show that overall, it is not until the 30-34 year old cohort that owners begin to outnumber renters.

In Montreal, Toronto and Vancouver, however, that transition does not occur until the age 35-39 cohort.

By comparison, in Saskatoon owners begin to outnumber renters even among 25- to 29-year-olds.

Lifecycle events are also key differentiators, even among those at similar income levels. Having children is one such primary trigger.

The 2016 Census revealed that couples with children embarked on homeownership sooner than  couples without children. The majority of couples in the age 25-29 cohort with children are owners, whereas it is not until the 30-34 cohort that the balance tips among couples without children.

For single-parent families the shift comes even later, at 45 years or older. One-person households (those living alone) take the longest to embrace homeownership — it is only among the age 50 or older cohort that owners outnumber renters.

Personal tastes and predispositions also matter. Most of those preferring high-rise apartment or condominium living remain renters irrespective of their age and are more than twice as likely to rent than own.

But the reverse is true for those living in single-detached housing. Even within the 20-24 cohort, the majority are owners, likely in part due to the extremely limited stock of rentable single detached homes.

For semi-detached home dwellers the balance shifts to ownership slightly later, in the 25-29 cohort in Toronto and at 30-34 in Vancouver.

The statistical portrait of how we live and what we own, as is painted by Statistics Canada’s data, confirms that demographics explain two-thirds — or some similar proportion — of homeownership. What is more important is how we put this information to good use.

Urban economists have long argued that the headship rate, a proxy for new household formation, influences the demand for housing. Equally important is where the new households are being formed, what they earn, and what preferences they may have for living arrangements.

Tracking and forecasting demographic trends offers investors, mortgage lenders and governments the opportunity to make wise decisions about housing markets. That demographics are location-specific suggests that overarching national or provincial strategies or policies could miss the mark in local housing markets.

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