Will Baby Boomers Leave Behind a Housing Glut?

Many Canadians believe that when Baby Boomers leave their homes, a flood of houses will hit the market and solve the housing crisis. In this episode, Mike Moffatt and Cara Stern explore why that outcome is far from certain, examining the roles of immigration, population growth, housing supply, and changing housing preferences in shaping Canada's future.

Topics Covered:
• Baby Boomers and the housing market
• Immigration and housing demand
• Canada’s aging population
• Family-sized housing shortages
• Suburban vs. urban living
• Housing affordability
• Population growth and the economy
• The future of Canadian housing policy

#HousingCrisis #CanadaHousing #RealEstate #HousingAffordability #Immigration #HousingMarket #CanadianEconomy #MissingMiddlePodcast

Chapters:

00:00 Will Baby Boomers Solve the Housing Crisis?
01:28 The Theory: A Coming Flood of Family Homes
03:35 Why Demographics Alone Don't Tell the Full Story
05:55 Immigration and Canada's Population Growth
08:22 Will Canada Be Able to Attract Future Immigrants?
10:30 The Missing Supply of Family-Sized Homes
13:12 Why Suburban Living Isn't Going Away
15:40 Are Planners Misreading Housing Demand?
18:05 What Could Actually Cause a Housing Glut?
20:45 Regional Winners and Losers in Canada's Housing Market
22:15 Team Affordability vs. Team Housing Shortage

Research/links:

Mike’s piece at the Globe: https://www.theglobeandmail.com/investing/personal-finance/article-housing-baby-boomers-suburban-homes-young-families/

Statcan population projections: https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=1710005801 

Hosted by Mike Moffatt & Cara Stern & Sabrina Maddeaux

Produced by Meredith Martin

Funded by the Neptis Foundation https://neptis.org/

Transcript

SPEAKER_01 0:00

There's a question I've gotten often from people who know that I advocate for building more homes, and it goes something like this. Consumers own a massive share of Canada's single family homes. Consumers are aging. When they die, all those homes are going to flood the market and our housing crisis will be solved through sheer demographics. And if we're not careful, we could end up in a situation where we've built too many homes. So don't stress, wait it out, because it's coming. Demographics, hosted by Mike Moffat and Kara Stern. And it's a nice idea for people who are doing well with a status quo. But the question we have today is is it true? Will demographic change save us? So let's start with what that theory gets right.

SPEAKER_00 0:44

Well, I don't think they're right, but the folks that think that there will be a glut of suburban family-sized homes, they do actually get quite a bit right, though since the 1990s, they've been overestimating how quickly these things will happen. But here's what I think they're right about. Now, they're absolutely right that the baby boomers won't live forever, because none of us will. And they're right that the baby boomers also own a lot of suburban homes, like millions of them, in fact, across Canada, with roughly about 12 million empty bedrooms. They're also right that the number of Canadians dying each year is set to rise. So back in the early 1990s, the era of Nirvana and Pearl Jam and SoundGarden, about 200,000 people died in Canada each year. And that went up over time. And just before the pandemic, we hit about 300,000 people a year. And Statistics Canada projects that uh by about 2036 or so, we're gonna hit 400,000. And by the late 2000s, we'll hit about 500,000 a year and then kind of level off at that point. And they're also right that births aren't increasing that much, if at all. And in fact, the same stack camp predictions say that by 2029, for the first time in Canadian history, there's gonna be more deaths than births, and that's likely going to continue for the foreseeable future. So, yes, a lot of homes would be freed up. And if that was the end of the story, it would be a safe bet that we would have a glut of suburban homes and prices would, in fact, crater. But their story misses a lot.

SPEAKER_01 2:13

It makes me think back to when we looked back at the book Boom Bust and Echo, and we were reading their predictions on housing, and they're basing it on demographics too. So they were looking at like what the baby boomers uh what their ages are and what's going to happen to the housing market, and they said it was going to collapse, that homes would no longer be something you can count on for an investment. It was now going to be just somewhere to live in, and you're not going to make money off of it. And like that turned out to be very wrong. A lot of their book they got very right, but the housing part of it, it was missing something, which I suspect is some of the parts that we are missing now.

SPEAKER_00 2:47

Yeah, absolutely. So let's start at looking at what doesn't work on this theory. So the first thing that doesn't work is that they kind of forgot about this thing called immigration. Because it's ultimately not births versus deaths that matter, but it's population growth, particularly the growth of people in their 20s and 30s who start to buy and rent homes. The population of those folks right now in Canada is absolutely massive because of high levels of immigration and non-permanent resident growth we've seen over the last decade, and they need housing. And Canada's population is still set to grow by about 300,000 people a year or more starting in 2028. So, although, yes, births are going to be lower than deaths, our population is still going to grow by hundreds of thousands of people each year because of immigration. Canada is not a closed nation.

SPEAKER_01 3:40

That's what it's been for the past, you know, well, in the past, actually, just like for a very long time and supercharged in the earlier parts of this decade. But the thing I think about is how much of the countries that we bring people in from, they're also dealing with below replacement rate, fertility rate. So yes, we we will see lots of population growth still for a while, I think. But I don't know. I'm starting to think that like in the long run, it might not be easy to count on that people are going to be rushing to come here.

SPEAKER_00 4:12

Yeah, but as economists like to say, in the long run, we're all dead. So by 2100 or so, that that may be true, but I don't see that really being much of an effect over the next decade or two. You know, we got to keep in mind that Canada could probably bring in tens of millions of people each year if it wanted to. You know, there's that level of demand out there. The constraints that we have on immigration are our targets, our requirements, things like the level of education you have and so on, and just basically our desire uh to bring in folks. So, you know, one example, you kind of mentioned different countries, you know, there are still 26 million births a year in India. That's not at an all-time high, but it's pretty close to it. And they're not going to be in their 20s and 30s until well, 20 or 30 years from now. So, yeah, there might not be the the kind of supply of people wanting to immigrate here at some point, but that point is probably 2070, 2080, 2100. You know, it's not going to be the kind of thing that's going to be an issue, say, five, 10, or 15 years from now.

SPEAKER_01 5:18

I'm thinking it could happen sooner because like we know that we need population growth to sustain our economy. And pretty much all developed countries are dealing with a problem of too few babies being born in their country. And so the solution for I think most of them, not all of them, but a lot of them, is bringing people in from other parts of the world to supplement the population that isn't being born there. And so when we have so many problems like a housing crisis, good luck convincing people to move here when the whole developed world is fighting for them. Like right now, you have a lot of people wanting to come here. The political winds have shifted, and there's a lot of people here who don't want to see so much immigration right now until housing catches up, until our healthcare capacity catches up. And that can change. Like, I mean, uh in 20 years from now, who knows what the sentiment will be? It depends. I think it depends a lot on whether we build enough homes for people. But when we have to fight for immigrants to come here, and I think we will one day, I don't know that it's a given that they're going to choose Canada.

SPEAKER_00 6:15

Well, I I think there may be issues around uh competing for for talent, right? Competing for for uh you know certain skills and so on, right? But you know, keep in mind we take about one percent of of the people who who want to move here. Uh so yeah, if it gets more competitive, we might only take three percent, you know. We we might we might only have a pool of 10 million people or 8 million people or 6 million people to choose from. And I also don't think it's a given that other countries are are going to be fighting uh for for newcomers. The United States sure sure sure isn't.

SPEAKER_01 6:51

Not right now.

SPEAKER_00 6:52

That's that that that's for sure. I mean, if we went to President Trump and said, hey, we will take 12 million undocumented folks living in America and we'll bring them up here, we might be able to get a trade deal signed with the U.S. So, you know, I I have problems with this here on both sides of it. That, you know, I don't think that supply of potential newcomers is going to shrink, or at least at you know, uh quickly. Uh, but I also don't see that huge demand from from other countries. I I think the limitations are just whatever we put on them. I don't ever foresee a scenario, at least in the next 30 to 40, 50 years, where we set an immigration target and we're actually unable to meet it.

SPEAKER_01 7:38

Let's assume that's right and that immigration is going to continue at whatever rate we want it to be. Uh and I suspect is going to be fairly high still because of our whole economic structure relying on population growth. So if that's the case, let's go to the next thing that the theory misses in your mind.

SPEAKER_00 7:55

Yeah. So the second thing I think it misses is that the supply of these new homes is low. You know, we are building fewer family-sized homes than ever before. That, yeah, housing starts are roughly around, you know, the average we've seen over the past decades, but there's been this shift from building family-sized homes to high-rise units, both condos and purpose-built rentals. And that's not to suggest we don't need condos and purpose-built rentals. We do need them, but you know, there's been this kind of one-to-one trade-off. And it would be one thing that if we were building fewer family-sized homes because of lack of demand, it was just like nobody wants these things and we're not going to build them. But that's not what's going on. It's rather that they become prohibitively expensive to build due to land regulations, building code, taxes, and things like that. So the, you know, we're not only seeing a big glut of population, but we're also building fewer family-sized homes just because they've gotten prohibitively expensive to create.

SPEAKER_01 9:01

So family-sized homes are just too expensive. And so people can't buy them. And I guess that's why that you end up with all these like condos going up, because there's there is a market for that. I know right now it seems like there's not at the moment, but at the same time, it's like at the right price, there's absolutely a market for those homes, but we do need more family-sized homes.

SPEAKER_00 9:18

Yeah, absolutely. So, yeah, we have in in some markets, lower mainland, BC, Southern Ontario, you know, we have seen prices go down, but you know, we're still at the case for a family-sized home that we're looking at home values that are six, seven, eight times uh median family incomes. And in the GTA, you're closer to 12 to 15. So, you know, is not the case like 20 or 25 years ago when I bought my first home, you know, you could get it for two, maybe two and a half times income. So, yes, prices have have fallen. Yes, we have affordability, but we have a long way to go before you know the middle class can can afford these homes. And then finally, you know, I think there's one other thing that people who make this prediction and and and and planners and others get wrong, is that they kind of assume that suburban homes are going to be passe, that basically nobody's going to want them in the future, not for demographic reasons, but just that they're going to go out of style. You know, there's a lot of tropes out there that, you know, millennials are too lazy to mow the lawn and they don't know how to drive a car. So all they want to do is live somewhere that they can take a subway or Uber, and they only want housing types where somewhere someone else does the maintenance. And I exaggerate, but only a little. Like it's absolutely true that there are a cohort of people who want to live in a walkable neighborhood close to downtown. I'm one of them. But the challenge is there's not enough of those to go around. It's why those homes go for two, three, four million dollars. And you know, I don't I don't see that changing. That simply there's not going to be that level of affordability and those many units to allow people to basically not live in the suburbs.

SPEAKER_01 10:59

I wonder though, like you say that these are something that planners get wrong. Which planners are you talking about? Are these like city planners? Are they like private urban planners? Like who's actually saying that about millennials?

SPEAKER_00 11:10

I think a lot of it is municipal planning. That if you go through municipal plans, there's a lot of underlying assumptions. And to be fair, to make a plan, you have to make assumptions. It doesn't, it doesn't matter if you're a municipal planner or an economist, you're building a model, you're building a plan. There's going to be underlying assumptions. And, you know, many of those assumptions, I think we were finding out not to be true. You know, one of those assumptions has been that seniors are going to downsize in great numbers and free up these single-family homes. Hasn't happened. And I think one of the other ones is that, you know, the demand to live in high-rise apartment close to transit is going to be so high that you know there's just not going to be that interest in suburban homes. And we're not seeing that so far. Now, that might be true someday, possibly, but it hasn't happened yet.

SPEAKER_01 12:00

It seems to be a bit of a mismatch because I think that there is demand for that kind of living, maybe like in your 20s, especially, like when you're before you're raising a family, but the prices are so high that most people cannot afford a condo in a good transit-oriented walkable community at that time in their life when they actually might be most likely to consider it.

SPEAKER_00 12:18

Yeah, I that's I mean that that that is true that we haven't built enough of them. And I don't see us building enough of them uh anytime soon. But but I think a lot of this also, you know, ignores immigration. That, you know, I say that like 90% of all bad planning and housing discourse has the unstated assumption that the only people who need homes are like seventh generation Canadians with Scottish last names who are all urbanists. But you know, when you look at much of housing demand, it's driven by immigration. And newcomers like the rest of us have diverse preferences, they don't all want the same thing, but a whole lot of them really don't want to be living in a high-rise apartment. Many of them came from countries where that was the only option, and they're coming to North America in part for that North American dream lifestyle of having a ground-oriented home, a little bit of a lawn, and so on. That's the attraction uh for many newcomers, and that's the kind of property that they're going to want.

SPEAKER_01 13:17

Yeah, I think a lot of people want that. I just keep wondering like it all comes down to this constrained optimization. Are they going to be choosing it based on like there's so many factors at play here? If you're going to be working in a city and congestion is brutal because population growth is high and there's not good transit, like people might make the choice to live in one of these like more walkable areas, even if it's a smaller, like maybe it's a unit in a multiplex. I keep thinking, I don't know that we have the data to know what people are going to choose, because right now you're not really giving them the choices that you know we are advocating for in missing million homes, or it's often you're choosing between an apartment and condo or moving to the suburbs because we don't have the option otherwise.

SPEAKER_00 13:56

Yeah, no, no, absolutely. So, you know, I think the the point here is that we're not gonna be building enough of those because you you would have to basically flood the market with them and have them become so popular that these suburban homes become passe, right? So there's kind of a layer of assumption on top of assumption on top of an assumption that would lead you to the place to say, yeah, nobody's gonna want these suburban homes. And I just don't see that as particularly likely. Like, you know, we at the missing middle absolutely want to get more gentle density, we want to get more missing middle homes, but I'm also realistic uh at the level of success we're gonna have. You know, I would love it if you and I and the team absolutely nailed it and like everybody did exactly what we said, and you know, and we had this antipoon there. I'm just I'm not that not that optimistic. You know, our view is that families should have choice. We want to be able to create as much choice as possible. And I just don't see us ever getting to a point where we've created so much choice that people are gonna go, uh yeah, I don't I don't want to buy that uh four-bedroom home in Mississauga. It just strikes me as incredibly unlikely.

SPEAKER_01 15:16

I think it's unlikely, although I do think it depends on cost because we know that suburbs are so much more expensive to run because you have a high level of services, you don't have the density to support it. So we end up with like basically everyone else subsidizing it to make it the cheap option, and that makes it very attractive. But if it if people actually have to pay the full cost of living in the suburb, it would be a very luxurious choice, and that is something that a lot of people would like. But I I think right now we think of it as that's the cheap option. And it like maybe it really shouldn't be. So I think if like it all depends on policy of whether that'll continue to be the case, because I think that I think that you're right that most people do want to have like their own home ideally. It's just that, like, you know, we don't live in an ideal world. So when you have other factors at play here, they might make other choices.

SPEAKER_00 16:01

Well, yeah, I my point is we don't live in an ideal world, so they are gonna choose the suburbs, right? Um, so because I I think that that's ultimately it. And you know, keep in mind the infrastructure for those homes is already built, right? Because we're talking about the demand for the homes that the boomers already live in, right? So we're not building a lot of greenfield uh infrastructure for them. So yeah, there's maintenance and yeah, a lower density neighborhood costs more to snow plow. Yeah, those things are those things are are absolutely true. But you know, I kind of point out it this way. It's like, okay, yeah, you can live in Cabbage Town and have a three million dollar home, or you can live in, I don't know, Brantford and have a $700,000 home. $2.3 million pays for a lot of snow plowing, right? So, yes, some of these neighborhoods are more expensive to service for municipalities, but you know, I'm skeptical of this idea that if we could somehow internalize those those costs, that people go, yeah, I'm gonna save $500 a year on my property taxes by buying a home that's $2.3 million more expensive. I just don't see the math working there. But I think it's also kind of like a moot academic point because I don't see the nature of property taxes changing anytime soon.

SPEAKER_01 17:22

Okay, let's go back to the argument that there's going to be a glut of single family homes out there. We don't need to build more, we just need to wait. So let's like look at that argument and figure out is there any way that they're right?

SPEAKER_00 17:33

Yeah, so when I taught a course at Ivy, I taught this course for over 10 years on global global investment and you know how the strategies that that firms use uh when when making foreign direct investments. And we use a lot of tools to kind of analyze these things. And and one of the tools we used was called a pre-mortem analysis. And the idea behind a pre-mortem analysis is that an organization, this is often done in the military, you come up with a plan and then you analyze that plan as if you did it, but the plan failed. And you work backwards and go, okay, what could have caused that plan to fail? It's it's a it's a red team exercise. And what we, you know, what if I was to red team this or do a pre-mortem analysis and go, okay, actually, you know what? My prediction is wrong. Why might I be wrong? The obvious answer is immigration, right? But a little bit different than what you suggest, that I don't think the immigration issue would be a supply issue. I think it would just be a demand issue. That Canada just decides for whatever reason goes, okay, we're gonna further lower immigration targets, we're gonna further uh reduce the number of non-permanent residents and and so on for whatever reason. And you we could debate the the economics of it, but that could happen. We could get to a point where our population continuously starts to fall. I think, yeah, at that point, you probably would get a glut of family-sized homes and suburban homes in the next 10 to 15, 20 years, and in particular, I think it could be right in specific geographies. So the other thing that we could see happen is let's say Western Canada grows more economically, and say southern Ontario stagnates. Well, you might start to see, and we've already seen this, lots of families move from southern Ontario to um to Alberta or you know other parts of Western Canada. So you could have that, you know, the same way that we've seen you know rust belt cities in the US hollow out in their suburban homes and in places like Gary, Indiana basically go to zero. That could happen in specific pockets. So those were the things that I would be looking at. That you know, I think the glut of family home people could be right either because immigration goes way, way down, or they could be right at a specific geographic level because economies go in decline and people move from one community to another.

SPEAKER_01 20:02

I guess if you're if you're thinking about where to settle down right now and you know, worrying about your property value, you have to think about where that would be, that where they wouldn't go down. Because I guess we did see a little bit of this during the pandemic where prices went up in in places and down very quickly in those same places that don't necessarily have the demand constantly. So I guess that's those the communities you're thinking of. Like, I guess those are like, I don't know, I'm thinking of like Oshawa and I'm thinking of Tilsonburg and all these places that like they really, really, really shot up at during the pandemic. And I believe they've all not maybe aren't affordable, but uh come back down quite a lot.

SPEAKER_00 20:35

Yeah, though they're they're still way higher than than they used to be. So so that could that could be part of it, but I was just thinking more of the kind of economics of it. So, you know, let's suppose we we have a 20 to 30 year run where oil and gas does really well, but manufacturing doesn't, then you're gonna see people move out of those manufacturing centers like an Oshawa, but also like a Windsor or London and so on, and move out to the oil patch, or vice versa. You know, we could have a 20 or 30 year period where oil and gas prices crater, there's not a lot of demand out there, and you see folks move move in the other direction. And you know, we've seen this before in Canadian history. Like my dad's family is is from a community called Southeast Saskatchewan, and during the depression, Saskatchewan basically depopulated because of because of droughts. And you had this kind of diaspora who moved out of Saskatchewan and moved to places like London, Ontario. So that could happen again. You know, it doesn't necessarily have to be a drought, but if you have some part of geography that doesn't do well or some industry that goes into severe decline, you could absolutely see a level of outmigration that that causes suburban homes to become uh quite available and cheap.

SPEAKER_01 21:54

I just keep thinking about what you said about if we did kind of close the tops on immigration, like that definitely requires some major structural changes to our economy. And I just don't even know how Canada would deal with that. I guess that's actually that should be an episode. We should come back to that. But how do you restructure your economy if you can't rely on population growth?

SPEAKER_00 22:11

I think that's exactly it. That the glut of family homes assumption requires some level of large structural change to Canada's economy, whether that's a big reduction in immigration or a lot of reforms to infill housing and so on, and you get, you know, massive uh boom of family-sized infill homes or so and so on, that it requires a big economic and structural change that I just don't see as likely. It's not impossible. I don't want to suggest there's zero chance. I just don't see it as particularly likely.

SPEAKER_01 22:45

Yeah, what I'm getting from this is we are not going to slow down on our advocacy to build more homes because, like, I guess worst case scenario, if there are too many homes, like I don't know, I would probably choose a problem where homes are too affordable for people than ones where homes are completely out of reach for the middle class.

SPEAKER_00 23:03

Absolutely. Put me on team abundance and team affordability.

SPEAKER_01 23:07

Thanks so much for watching and listening. Our producer is Meredith Martin and our editor is Sean Foreman.

SPEAKER_00 23:13

If you have any thoughts or questions about Southeast Saskatchewan, please send us an email to missingmiddlepodcast at gmail.com.

SPEAKER_01 23:20

And we'll see you next time.