Canada is internationally acclaimed as having some of the most expensive housing on earth. Nationally, our median home price is $512,000 in 2019 (CREA) and some 7.2 times the national median household income of about $72,000. The Greater Toronto and Vancouver areas are even worse, of course, with average home prices (detached and condos) well over $600,000 and some 8 to 9 times the median household income in those areas. Rents have also skyrocketed along for the ride.
To own shelter, and still cover other living expenses, households have become encumbered with a record $2.2 trillion of consumer debt, 72% ($1.6 trillion) of which is owed on mortgages. At the same time, income gains have not nearly kept up and so Canadians owe an uncomfortably high $1.80 of debt for each dollar of disposable income today.
Last week, a couple in their late 50s were showing me plans for a new home they’re about to build. They had spent a year working with an architect on design and it looked beautiful. It also looked huge. I asked how big the house would be and they weren’t sure. In consulting the blueprints, just over 8000 square feet of personal use space was the tally. For two people. When I said it was quite the retirement home, they joked that they may never be able to retire with a house like this, and there was a moment of silence.
Maybe this house will be their dream come true and I hope that it will. But the conversation reminds of errors that humans commonly make in our HGTV-inspired, home-planning excitement.
First of all, we should remember that true dream homes are debt-free before retirement and allow their owners financial slack to afford other needs and goals. If our shelter doesn’t fit these parameters then it probably should be reimagined. We have to be careful of the homes that egos and status build because they can fit our life poorly in the end.
Second, personal use-homes are about personal consumption, they aren’t investments. They take our income, they don’t produce it. If we think of them as income-sucking shelters we are more likely to be cost-careful in our choices. If the plan is to own the property for a decade or more, then hopefully we will get back what we paid, maybe a little more. But that’s not guaranteed; especially if we’re measuring progress from historic highs in property valuations, like today. It would be typical for home prices to flatline over the next decade from here.
Thirdly, it’s not just about the cost to acquire, it’s also carrying costs that impact the comfort and joy of an abode. If taxes, utilities and maintenance are high, a property will feel less dreamy over time. Even where one has sufficient resources to be mortgage-free and cover upkeep, the higher the fixed expenses the less cash flow for other goals, and the less zen we will experience. We can save money by doing our own property maintenance, for sure, but as we age this can become more onerous, and where we have to hire help it can drain our funds and wear on the nerves.
Fourth, we should appreciate that big homes with traditional heating/cooling systems and materials are inefficient and likely to be less in demand going forward. If we need or want to downsize in the future, there may be fewer buyers than imagined and the value may be suppressed by a deluge of owners with similar plans, amid buyers interested in more cost-efficient shelters.
Lastly, the best-made plans are forward-looking and flexible. Thinking ahead to accessibility needs as we age is smart, as well as including a separate nanny suite where possible. We might want it for rental income in retirement, we might want it for live-in care. Either way, designing optionality is key.
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