Baby Boomers (a.k.a., those born between 1946 and 1964) generally don’t like Millennials (1991 – 1996), and Millennials generally don’t like Baby Boomers… unless of course you’re related. I’ve heard so many conversations about how these generations ruined one another. Millennials are often thought to be lazy and ungrateful, while many think Baby Boomers had it much easier. Thankfully, that’s not actually what I intend to talk about in this Insight Article, but Internet memes on this subject always seem to provide a chuckle or two.
Sorry, Scapegoat – The conversations that are going around right now is that Baby Boomers are staying put with their housing in Toronto, thereby causing detached housing to be more unaffordable for Millennials. So the question then becomes – are baby boomers at fault for the lack of supply?
I wouldn’t necessarily put all pf the blame all on the Baby Boomers, but obviously it undeniably does contribute to the lack of supply. One generation shouldn’t expect another generation to pave the way for another. The lack of supply is ultimately a result of many factors. If a scapegoat were to be identified for this issue, then I would blame the City for making it difficult to build detached homes. Simply put, there is way too much red tape over the construction of new homes right now.
No Reason to Sell – I have many Baby Boomer clients who own real estate, and realistically, it makes no sense for them to sell their $1 million+ (fully paid off) detached home. Yes, it is true that they may have bought it for a third or half of today’s market price (Millennials could be jealous of that fact alone), and have made a lot of money from the market appreciation alone. However, that doesn’t necessarily mean that they should sell unless they absolutely need to.
Allow me to illustrate 2 real life examples of why Baby Boomers do not need to sell.
Example #1 – A Baby Boomer couple bought a 3,000 square foot detached Oakville home for $500K. It’s now worth about $1.5 million. They are looking to smart-size (i.e., downsize) to a condo with no stairs. They’re accustomed to 3,000 square feet worth of living space with a backyard. A similar 3,000 square foot condo is not within their price range. To buy an 800 square foot 2-bedroom condo in North York, it would cost them about $800K with only 1 parking spot. Plus, there isn’t even an option to get a second parking spot. In their mind, that tiny $800K condo is more expensive than the house that they bought many years ago… at ⅓ the size! Why would they sell their house in Oakville only to downgrade their lifestyle… all just because of stairs? They ended up not selling nor buying. They stayed put in their Oakville home because it just made sense to stay put.
Example #2 – A Baby Boomer couple owns a home in Brampton and are looking to downsize into a condo because the kids have left the nest. Both of them are still working but liked the idea of smart-sizing. Instead of selling their current Brampton home, they were open to the idea of buying another property and turning their primary home into a rental property. As the mortgage on the Brampton home was very low, renting the property at market rent essentially covered the cost of the new condo. If you’re okay with tenants and can qualify for another mortgage (for Baby Boomers, this is fairly easy with the massive equity already in your home), then why not. Now they have a new tenant (which was leased only in 1 day) and a new condo for essentially just getting another mortgage (of which mortgage costs are essentially covered by the tenants – what a great deal!). Ultimately, their Brampton home was never sold, just leased.
In most of the circumstances that I consult on, very rarely does it make sense to sell any home that a Baby Boomer would have bought many years ago. Oftentimes, the better option is to stay put and/or buy another property. However, reader beware, this strategy would be advantageous for the Baby Boomer, but for the rest of us, these options don’t end up resulting in any supply to the market at all.
The Wrap – So are it the Baby Boomers in fact at fault for the supply issue? To put it in simple terms, no it’s not their fault. Their choice to not sell their current homes is unfortunately the best solution for them financially, and nobody should blame them for not selling. It is undeniably hard for Millennials to get into the detached market. Will it get easier? Probably not. I honestly think most Millennials will be renting for life and so will all subsequent generations. Prime real estate doesn’t exchange hands much in very established cities around the world. Toronto is for sure getting there.
If you’re a Baby Boomer who is consider the idea of smart-sizing but unsure of your options, then reach out to us at PPTO and we can have a quick chat to discuss a strategy that works for you.
Until Next Time, Happy Real Estate-ing
