Today, millions of Canadians have been blessed with unprecedented wealth due in large part to one key financial asset: their homes.
Headlines touting ever-higher prices and the prospect of being priced out of the market do not help dispel Canadians’ fascination with home ownership and a hesitation to sell. For a point of comparison, Germany’s home ownership rate is a much lower 52.5%.
House rich and cash poor
The phrase “house rich and cash poor” has never been so apt for so many Canadians. While on paper many families are affluent, the bulk of their assets are tied up in an incredibly illiquid resource: their home.
Precariously, rising utilities, taxes, and maintenance costs are creating a situation where home ownership is becoming an increasing drain on household cash flow despite its overall positive impact on net worth.
Rising house prices have shielded the reality of increasing ownership costs, but households can’t live on asset appreciation, unless they sell, take a reverse mortgage, or a line of credit against their house.
The personal balance sheet of Canadian households has become unstable. On one side of the ledger is an asset in the form of a house, sitting alongside meagre retirement savings and a paltry expectation from the CPP.
On the other side of the ledger is the sum financial requirement for living in retirement.
Moving into rental
For those who do own a home and are beginning to grow older, the Canadian housing market poses a remarkable solution, though, to the problem of retirement. Increasingly, empty nesters are moving out of their house and into a rental.
Perceptions of rentals have in the past posed a barrier to this phenomenon. The lack of new rental supply in the past few decades means that when most Canadians think of rentals, they think first of Brutalist 1960s apartment blocks or questionable condo-rentals.
Finally, new rental stock is being built. These are rentals as never before seen in Canada, built specifically for an older, wealthier, and more demanding clientele.
These rentals are large to accommodate existing furniture originally intended for a larger house. They have condo-quality amenities (or better), and they are well located and expertly managed.
For example, 940 On The Park, a luxury apartment building, just outside of London, Ont., has average unit sizes of over 1,500 square feet, and features a park-like setting, pool, and other amenities.