Paying rent is hard enough. Photo via Flickr user Sascha Pohflepp
This post originally appeared on VICE Canada.If you're collecting clues that civilization as we know it is about to collapse (be honest, we all are), the fact that millennials aren't buying homes maybe isn't at the top of your list right now. Yet modern economies generally depend on young people making this step—which to many of us feels about as likely as a Donald J. Trump presidency bankrolling free tuition for everyone. Home ownership is an economic driver, a retirement savings plan, and a cornerstone of community building. What happens if we all decide we can't afford this shit?VICE asked two experts—Paul Kershaw, a policy professor in the UBC School of Population and Moshe Milevsky, a professor of finance in the Schulich School of Business at York University—to weigh in on what would happen if millennials simply stopped buying houses. While it may not turn out to be the final straw that collapses the world economy, they told us it certainly won't make life any easier for our generation.VICE: If a generation doesn't buy in, what happens to the generation trying to collect on their investment?
Paul Kershaw: There is a domino relationship between people making initial acquisitions and then people making sales more generally. If people stop making initial acquisitions, there is a possibility that further sales and other parts of the retail sector will slow down and then that will have an impact on the price people can sell their homes.Moshe Milevsky: I don't think we're going to see the collapse that worries people. We have a valuable natural resource in housing and so many groups of people around the world who would love to have that and are gaining access to the money to do that—they're always going to want to take this off our hands. I don't think they're going to give up on it.We have to start thinking about housing as a natural resource and develop a framework around who has access to that. Who does it belong to? The highest bidder or the people who live here who have made it valuable?People often choose buying over renting because there is stability and community for family life. What changes when we stop buying houses?
Milevsky: We suddenly lose the stickiness of our labor force. It's very important for Canada to have more than just high wages keeping us here. The last thing we want is to be a commodity labor market. What's stopped us from doing that is the connections we've had to our community. If the younger generation sees housing as unaffordable and uninteresting, they're more likely to move internationally.People may lose their anchor to a particular geographic location. I want my neighborhood park to be clean and green and well maintained. If I just live their temporarily, do we lose our interest in the environment beyond our immediate needs? There's also the transient nature of politicking. Who are your constituents if communities change?Kershaw: If you opt out of home ownership, you opt out of the most secure opportunity for starting families and to have your kids in the same school, childcare, and community. Home ownership has also been a route to get access to the ground and playing outside. Renting in bigger cities is not having the kind of stock suitable for families. Big cities aren't losing 20-somethings, it's when the biological clock starts ticking you see a bit more of an exodus.If renting is going to become a common practice for adults, systems such as childcare need to be improved. I'd like my child to be in the same childcare space for a few years. I don't want to move around from neighborhood to neighborhood because I'm being evicted because my landlord can make more on other renters. We need to think about how renting can create that kind of security.Homes have slowly become not just a place to live, but the primary retirement investment an entire generation has made. What happens to retirement in a world where people do not invest in homes?
Kershaw: Right now people have been relying on home ownership as a valuable contribution to retirement. And Canada has a long vision of subsidizing housing through home ownership that we don't talk about it that benefits that retirement planning. If you sell a home and it's been your primary residence, you don't pay any tax on the increases you gained. You can save money in your RRSPs that don't get taxed, and you can put that in your down payment. It adds up to billions. Renters don't benefit from that. You're not getting any of those equity increases when you move from your rental. You're not getting a tax break. We're going to have to fundamentally think through how we're supporting a young group of renters and how they're accumulating wealth for their own retirements.Milevsky: There's a parallel to how investing has evolved in general. People used to think I buy one good stock in my retirement portfolio, but over time people realize that's a dangerous way to invest. You should have a diversified portfolio. Apply that thinking to housing: About 20 years ago people thought investing in one house was enough, but that's one house, in one city, in one country. Even if real estate is a good investment, I'd rather buy it as a fund. Or we'd make an agreement, we'd split 50/50 the gains of a house in Edmonton and a house in Toronto.Follow Sam Power on Twitter.
Advertisement
Paul Kershaw: There is a domino relationship between people making initial acquisitions and then people making sales more generally. If people stop making initial acquisitions, there is a possibility that further sales and other parts of the retail sector will slow down and then that will have an impact on the price people can sell their homes.Moshe Milevsky: I don't think we're going to see the collapse that worries people. We have a valuable natural resource in housing and so many groups of people around the world who would love to have that and are gaining access to the money to do that—they're always going to want to take this off our hands. I don't think they're going to give up on it.We have to start thinking about housing as a natural resource and develop a framework around who has access to that. Who does it belong to? The highest bidder or the people who live here who have made it valuable?
Advertisement
Milevsky: We suddenly lose the stickiness of our labor force. It's very important for Canada to have more than just high wages keeping us here. The last thing we want is to be a commodity labor market. What's stopped us from doing that is the connections we've had to our community. If the younger generation sees housing as unaffordable and uninteresting, they're more likely to move internationally.People may lose their anchor to a particular geographic location. I want my neighborhood park to be clean and green and well maintained. If I just live their temporarily, do we lose our interest in the environment beyond our immediate needs? There's also the transient nature of politicking. Who are your constituents if communities change?Kershaw: If you opt out of home ownership, you opt out of the most secure opportunity for starting families and to have your kids in the same school, childcare, and community. Home ownership has also been a route to get access to the ground and playing outside. Renting in bigger cities is not having the kind of stock suitable for families. Big cities aren't losing 20-somethings, it's when the biological clock starts ticking you see a bit more of an exodus.If renting is going to become a common practice for adults, systems such as childcare need to be improved. I'd like my child to be in the same childcare space for a few years. I don't want to move around from neighborhood to neighborhood because I'm being evicted because my landlord can make more on other renters. We need to think about how renting can create that kind of security.Homes have slowly become not just a place to live, but the primary retirement investment an entire generation has made. What happens to retirement in a world where people do not invest in homes?
Kershaw: Right now people have been relying on home ownership as a valuable contribution to retirement. And Canada has a long vision of subsidizing housing through home ownership that we don't talk about it that benefits that retirement planning. If you sell a home and it's been your primary residence, you don't pay any tax on the increases you gained. You can save money in your RRSPs that don't get taxed, and you can put that in your down payment. It adds up to billions. Renters don't benefit from that. You're not getting any of those equity increases when you move from your rental. You're not getting a tax break. We're going to have to fundamentally think through how we're supporting a young group of renters and how they're accumulating wealth for their own retirements.Milevsky: There's a parallel to how investing has evolved in general. People used to think I buy one good stock in my retirement portfolio, but over time people realize that's a dangerous way to invest. You should have a diversified portfolio. Apply that thinking to housing: About 20 years ago people thought investing in one house was enough, but that's one house, in one city, in one country. Even if real estate is a good investment, I'd rather buy it as a fund. Or we'd make an agreement, we'd split 50/50 the gains of a house in Edmonton and a house in Toronto.Follow Sam Power on Twitter.