Homeownership reduces inequality while providing generational equity

For many Canadians, a home represents a secure, stable asset and an investment in their future.

Despite the challenges with housing affordability across the country, research shows homeownership can play a significant role in reducing inequality—with benefits that extend across income levels, ages and regions.


Lower-income Canadians benefit most from owning a home

This isn’t limited to high-income households — in fact, it’s more significant for lower-income households, according to data laid out in a recently released white paper from the Canadian Real Estate Association (CREA) called The Homeownership Dividend for Canadians. For many lower-income households, a principal residence may be their only source of wealth, which means the benefits are even more pronounced.

“Homeowners have a higher net worth and statistically speaking there’s evidence for that,” says Cliff Stevenson, CREA’s Chair. But it’s also about increasing equality, which has a trickle-down effect on communities and neighbourhoods.

“Home is way more than just a house — home is a feeling, home is a sense of belonging,” says Stevenson. “There are financial benefits to owning a home, but when we’re talking about reducing inequality through homeownership, it’s significant. Regardless of what price point you enter the market, you benefit from market appreciation, from having an asset that helps you with access to financial vehicles.”

For the 8.5 million Canadian households with incomes below $56,495, housing represents nearly half of their total net worth. That’s why homeownership for low- and middle-income families is key to reducing inequality across the country, particularly for new Canadians and millennials, according to the white paper.

A 2018 study by Mortgage Professionals Canada (which draws on data from the LeForge House Price Survey and Statistics Canada’s Household Spending) shows the financial advantages of homeownership not only compare positively with other housing options, but are even greater for lower-income households. These findings also held for non-home assets, reflecting a greater propensity to save and invest among homeowners.

“We talk often about the high price of the average Canadian home, but with lower priced homes and markets, there’s still an equality benefit of getting into the housing market. We’ve seen appreciation increase over the years,” says Stevenson. Even for first-time home buyers who get into the housing market at a much lower price point, he says, they still receive that equality benefit.


Homes are an asset that increase net worth

Principal residences account for more than a third of the total value of Canadian assets, according to Statistics Canada’s 2019 Canadian Survey of Financial Security. For families who own their home, the value of their home doubled (on average) from 1999 to 2019. And as the value increases, we’ve seen a proportionate increase in median family net worth across the country.

“There’s a lot of financial benefits,” says Lisa Patel, President of the Toronto Regional Real Estate Board and a member of CREA’s Federal Affairs Committee. “It’s a stable asset class and it can offer a straightforward way to build your wealth and save for retirement.”

While homeowners may be tied to a mortgage, they’re also tied to an asset class — one that continues to increase in value. “You’re building wealth for your family, your kids, your grandkids, so there are many different financial gains,” says Patel. “It’s a sound long-term investment versus the stock market.”

For example, in 2015, Habitat for Humanity — a non-profit organization that helps local communities address a variety of housing needs and provides support for affordable housing around the world — surveyed 402 households with a habitat home in the U.S. state of Minnesota. More than half of respondents reported having more money after moving into a habitat home, with a 20% reduction in the use of government assistance.

And a 2013 study of an American-based prime mortgage program — a collaboration between researchers from one Korean and two American universities — found if respondents maintained homeownership for at least three years, low- and middle-income homeowners experienced a greater increase in net worth, including non-housing assets, than renters. The results held up even during the 2008-2009 recession.


All age groups reap the benefits

These financial benefits also extend across age groups, from young first-time home buyers to pensioners living out their retirement. Statistics Canada’s 2019 Canadian Survey of Financial Security, for example, shows a significant financial advantage from homeownership across age groups.

“If you purchase a home and you keep it for your entire amortization period, at the end of the day it’s paid off,” says Jill Oudil, CREA’s Chair-Elect. “That assists you not just during the time you own the home, but in your retirement years.” That’s becoming even more important as people tend to live longer compared to previous generations.

But as they build equity, they also have the freedom to upgrade, such as moving from a condo to a semi-detached house. Or, in retirement, they could trade across rather than up, moving to a larger countryside home without incurring debt.

“The younger you can get started, the better,” says Oudil. “If you need a roommate, get a roommate.” That might not be your goal or preference, she says, but it helps people get in the market. Or, a family might buy a home, live in the basement for a few years and rent out the main floor to start building wealth.

“For a lower-income household it raises the level of investments they have, and it will grow their long-term equity,” says Oudil. That in turn promotes a sense of purpose and fulfillment, which has a positive impact on their families and their communities.


Research backs homeownership as a policy goal

But homeownership isn’t a panacea. There’s no guarantee of financial security and it’s not necessarily the right answer (or the only answer) for every Canadian. But research from Canada and around the world shows the financial benefits of homeownership can be significant — regardless of income, age and geography.

Indeed, the financial dividend “is a crucial part of why governments have historically supported homeownership,” as CREA noted in their white paper, “and why it would be a mistake to abandon it as a policy goal.”

Homeownership continues to be the single largest source of wealth in Canada, providing net worth and financial security for millions of low- and middle-income households. So, while there’s still much debate on how to best provide access to homeownership opportunities for all Canadians, the research points to why this is so critically important.

— Realtor.ca