PETER DOLEZAL: Needs versus wants: The housing of Canadians
Having just returned from an extended visit to various overseas cities, I am again reminded of the huge difference that exists between Canadians’ housing expectations and those of peoples elsewhere. Our much higher expectations, and our striving to fulfill them, are major contributors to the relatively high rate of personal indebtedness in Canada, and for many, the un-affordability of their homes.
Wherever one visits — Europe, Asia or South America — it is quickly obvious that some 80 to 90 per cent of the residents live in condominium or apartment accommodation.
What is less obvious is that very few of the homes are larger than 800 square feet — even for those who are financially well-off.
It is clear that outside North America, most people have done a much better job of meeting their housing needs rather than striving for super-sized homes. To compensate for the limited indoor space, their communities encourage a feeling of community with neighbourhood parks, playgrounds, cafes and markets.
Another clear difference in other countries is the much greater residence stability of their population.
In Canada the average individual or couple changes homes about every five years. Elsewhere, it is not unusual for people to make only two or three moves in an entire lifetime.
In Canada, renting, especially among the younger generation, is generally looked upon as a necessary step toward home ownership as soon as they have their minimum five per cent down payment and their income allows. In other countries, renting is often considered an acceptable, affordable, long-term solution.
As a result of these more modest housing expectations, people worldwide are generally much less financially-stressed and indebted than Canadians.
I am old enough to remember in decades past our housing needs and expectations were a much closer match. We need only to look in the older neighbourhoods of our cities and towns to find that homes built 70 years ago or earlier were usually 800 or 900 square feet. Even in the 1950s the average new home rarely exceeded 1,300 square feet — and rarely had more than one bathroom.
Today, the average home in Canada is well over 2,000 square feet and even as we settle in, many of us quickly begin dreaming of our next even larger home — even if it means greater debt.
This is not to suggest Canadians should forego the opportunity to live in a larger, more comfortable home — as long as our higher expectations are truly affordable.
It is one thing to buy that fifth pair of $100 shoes we want but don’t really need, but it is entirely more significant to take on a lifetime of financial stress in order to buy that fantastic home we’ve always dreamed of, but cannot comfortably afford.
The message is simple.
By all means indulge yourself with the caliber and size of home you live in, but do so within a comfortable financial framework that minimizes the stress on you and your family.
The increasing un-affordability of housing in major Canadian cities is already forcing change.
Developers are designing and building a much greater proportion of condominiums, townhomes and minimum-lot size homes. Not only do these new homes reduce the cost of land, they also tend to be much smaller in size than even a decade ago. We may be seeing the emergence of a long-term cyclical trend which will have our grandchildren and great-grandchildren living in much smaller, more efficient and more affordable homes than is the case with our generation.
Superimposed on this already emerging trend is the reality of our changing demographic.
Over the next several generations, the reduced demand for large single-family dwellings is very likely to make them a harder sell than in the past. Owners of larger homes would be wise to lower their long-term, capital appreciation expectations.
Unlike the six per cent average annual price increases of the past decade, we would be wise to plan on only inflation-level adjustments in future decades.
In the interest of full disclosure, my wife and I are among those who indulge in a spacious home — well beyond our needs — in beautiful Sidney by The Sea. However, if such ownership were to create financial stress, we would very quickly downsize our expectations.
A retired corporate executive, enjoying post-retirement as a financial consultant, Peter Dolezal is the author of three books. His most recent, the Smart Canadian Wealth-Builder, is now available at Tanner’s Books, and in other bookstores.