There was a lot of chest-thumping on Canadian social media when a recent survey of global wealth showed the typical Canadian to be more than twice as wealthy as the typical American.
Predictably, the report, compiled by Swiss banking behemoth UBS, ranked the U.S., with its abundance of billionaires and ultra-high earners, far above Canada in terms of average wealth.
Yet, on median wealth, a good approximation of how everyday people are faring, Canada placed seventh and the U.S. 28th, as this first chart shows.
The UBS report provides a particularly flattering data point for Canada. But hold the applause. Canadians aren’t quite as rich as those numbers suggest.
A lot of Canada’s personal wealth is tied up in housing. In aggregate, principal residences used to account for less than 32 per cent of Canadians’ assets in 1999. As this second chart shows, that share had grown to 38 per cent by 2023.
And the value of that real estate has been greatly inflated by policies that have been restricting supply while, until recently, boosting demand through immigration.
Analysis: A decade-by-decade look at why and when housing became unaffordable
The comparison with the U.S. becomes far less flattering when one looks at home prices compared to incomes. To be sure, the U.S. has its share of big cities with prohibitively expensive real estate, and homes across the country are far pricier today than they were before the pandemic.
But the gulf between home prices and incomes remains much deeper for Canadians than for Americans.
Some rough math shows that the price of the typical single-family home was about five times the typical household income in the U.S. in 2024, according to the latest available data. In Canada, similar metrics show the typical detached home cost nine times the typical family income in the same period.
Why are Canadian homes so much more expensive compared to local incomes? It’s not because Canadians live in far more luxurious abodes or because their homes sit on vastly larger plots of land.
In Canada, the supply of detached single family homes being built falls far short of demand, creating an artificial scarcity that inflates the value of existing homes.Sean Kilpatrick/The Canadian Press
Rather, it’s in large part because this country hasn’t been building enough, leaving the supply of homes – particularly livable, family-sized ones, rather than smaller condos – far short of demand.
The high price of Canadian homes reflects the imbalance between supply and demand rather than real wealth. It is what economist Mike Moffatt calls an “inflated asset value due to artificial scarcity.”
That artificial scarcity stems from a range of factors that inhibit construction, from taxes and development charges that raise the cost of building, to oppressive zoning rules and needlessly restrictive building codes, as this space has argued.
The yawning gap between home values and incomes doesn’t just overstate Canadians’ affluence. It has also made it increasingly hard for young people to earn their way to home ownership and the wealth-building that comes with it.
Between 2011 and 2021, for example, the share of Canadians between the ages of 30 and 34 who owned a home dropped from nearly 60 per cent to a little over 50 per cent, according to data from Statistics Canada.
In fact, the real home ownership rate for that group – and Canadians under 40 in general – is likely even lower, according to Mr. Moffatt.
The phenomenon of young adults living with their parents well into their 30s has become more common in Canada in recent years.DARRYL DYCK/The Canadian Press
Traditional measures of home ownership usually count the share of homes where at least one resident is an owner. But that metric doesn’t pick up on the increasingly common phenomenon of young adults living with their parents well into their 30s.
On the sidelines of the housing market, more young Canadians are renting for longer
Instead, a better gauge of home ownership, given current trends, is to count how many people, out of the total adult population, own a home. Measured that way, the home ownership rate among Canadians between 30 and 34 drops by 10 percentage points, down to 42 per cent, according to Mr. Moffatt’s calculations.
It’s interesting that Mr. Moffatt’s analysis relies on a novel measure of home ownership developed by the Federal Reserve Bank of Minneapolis. In the U.S., too, more and more 30-somethings are still rooming with their parents and young people are increasingly struggling to buy a home.
But home ownership rates among young Americans are still noticeably higher than in Canada.
Lastly, inflated home prices are also a headache for the old. Sure, Canada’s older homeowners have disproportionately benefited from the run-up in real estate prices of the past quarter century. But even among them, many may not feel quite as wealthy as their net-worth suggests.
Real estate is, after all, an illiquid asset, meaning that it can be difficult – and costly – to turn it into cash. That’s a problem for anyone counting on their home equity to help fund their retirement.
The large gap between home values and incomes has made it increasingly difficult for young people to earn their way to home ownership.Evan Buhler/The Canadian Press
Scores of Canadians with middling incomes and savings have become millionaires as the value of their homes crossed the seven-figure threshold in recent years. (Prices have declined from their 2022 peak, but homes are still worth more than double as much as they were at the start of the century, even after inflation.)
But the traditional way of turning home equity into money for retirement is to downsize, which a number of baby boomers are finding increasingly tricky.
Many, unwilling to trade a spacious family home for tiny units in high rises, simply can’t find somewhere to downsize to. Others are finding that condos are still too expensive.
In Toronto, for example, the average two-bedroom unit costs around $770,000, while the average family home is worth around $1.6-million. Transaction costs, including a five per cent rate on real estate commissions and the land transfer tax on the condo purchase, would easily amount to around $120,000. Add in moving costs, and a downsizing couple might realistically be left with around $700,000 in net proceeds.
That’s a tidy sum but not enough for a plush retirement fund. And that’s not to mention the ongoing cost of often steep condo fees and insurance premiums.
Home ownership rates among young Americans are noticeably higher than in Canada, where many are forced to downsize to smaller units, rely on renting or prolonged cohabitation with parents.Sammy Kogan/The Globe and Mail
Selling and renting? That comes with hefty costs as well. The average asking rent for a two-bedroom unit in Toronto was nearly $2,950 in June, according to rental listing site Rentals.ca. Over a 30 year retirement, that would add up to more than $1.4-million in housing costs, even assuming modest rent increases.
Reverse mortgages, which allow older homeowners to borrow against their home equity and pay only when they sell or pass away, are another, increasingly popular, option. But they aren’t cheap.
Analysis: Canada’s reverse mortgage market has quietly grown to almost $11-billion
The lowest five-year fixed reverse mortgage rates right now are hovering around 6.2 per cent, compared to rates comfortably under 4 per cent for traditional mortgages. That’s not to mention that lenders often cap borrowing at less than 50 per cent of a home’s value, which may not be enough for many retirees.
For a $1.6-million home, a 65-year-old would qualify for a loan of up to $688,000 that would cost nearly $1.66-million in interest over 20 years, assuming interest rates don’t change. Even modest increases in home prices over those two decades would ensure there’s still some equity left. But most of it will have been eroded by principal and interest.
Canadians may look wealthy on paper. In reality, they’re poorer than they think.