Why young people can’t afford a home in Ottawa

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Today’s Millenials, the children of Boomers, are doing all the right things! Most have a university or college education under their belt.Student loans are slowly being payed off. Young people are earning money by working hard and building themselves as members of the community. They save their money. Despite all of this, they still cannot afford to buy a new home, at least not without the help of their parents. The question is why can’t they afford to buy a new house in Ottawa and what can be done to fix this?

Today’s family income versus cost of new homes

Back in 1989, the average price of a new single family home was $155,000. Now in 2014, the average price of a new single family home is $440,000. That’s a 185% increase in the price of a new single-family home in Ottawa over the last twenty five years. To gain better perspective on this it is good to compare the increase in new home prices to the increase in family income. Back in 1989, Ottawa’s median family income was $49, 995. Today, the median family income (of a family living in Ottawa) is $97, 010. Therefore over the last twenty-five years, there has been a 97% increase in median family income for the Ottawa region. Over the same twenty-five years, the cost of new homes has increased by 185%. This being said, the families living in Ottawa in 2014 are earning twice the amount as they did twenty-five years ago, yet the cost of new homes is three times the amount it was back then. It is safe to say that based on the cost of new homes, Boomers had it way easier than Millenials.

City of Ottawa decisions are increasing the cost of new homes

There are several things that the City of Ottawa can do for young people to help them afford new homes. The first being to reduce the tax burden on new home buyers. Every new home buyer has to pay a Development Charge tax of $30,000 or more when they purchase a new house in the suburbs outside of the Ottawa Greenbelt. This includes Orleans, Kanata, and the ever-expanding Barrhaven.

Coming this October (2014) the tax will be raised to about $38,000. This Development Charge tax covers the cost of the infrastructure needed to support the home, meaning the roads, sewers as well as police and fire services, and so on. Back in 1989, new home buyers of the Ottawa-Carleton municipality did not pay or at least paid little development charge taxes.

A second thing the City of Ottawa can do to help Millenials afford new homes is to expand the supply of land available for new homes. If there is not enough land supply there is a $25,000 charge added to the cost of a new home. Here is some more perspective: twenty five years ago in Ottawa, lad sold at about $80,000 per acre in comparison to today where land is selling at $225,000 per acre. Since 1989, the cost of land in Ottawa has increased 180%. The supply of land for housing in Ottawa is controlled by the City of Ottawa. In 2009, the City of Ottawa decided to promote growth inside the Greenbelt, by limiting the supply of new land available for housing. They called this Intensification, which is increasing the cost of land and adding more cost to the price of new homes.

A third way the City of Ottawa can help out young people afford new homes is to reduce the delays caused by home building permits and regulations. In order to build homes, builders need to have permits and licenses. The problem here is the amount of permits needed from various levels of government which is adding years to the building process and is, thus, a major challenge for new home buyers. Let’s take a look back to 1989: it took approximately two years for a builder to go from a subdivision application approval to sale of new homes. In 2014, it now takes five years to do the same. It takes three extra years during which the home builder is required to finance the cost of the land and do their business. Builders do not have much choice other than to pass on these costs to home buyers.

How to help young people afford new homes in Ottawa

The interest rates today are at an all time low. This in combination with help from parents are the main reason why the Millenial new home buyers are able to afford their new homes. However, low interest rates will not last forever and not everyone has the help of kind and generous parents. In order to help the house affordability situation is to look into decreasing new home buyer taxes, expanding the supply of land for new homes and to decrease the red tape for new home builders.