Retirement Homes—The Future of Canada’s Housing Market?

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It is well known that our population is entering an era of rapid aging. Population aging has wide ranging impacts for our country and while much of the policy debate surrounds the impact on areas such as health care, taxation revenue and our productive capacity, there is little discussion about the impact that it will have on our housing market. Over the next twenty years baby boomers will continue to drive demand in the housing market, as has been the case over the last four decades. But with the boomers set to enter the retirement phase of their life cycle, does an aging population mean that new home construction will be confined to retirement homes? Indeed, findings from our long-term forecast suggest that by 2030, over 80 per cent of new housing demand will come from those in their golden years!

Baby boomers are the largest demographic cohort in our population and as such have been the main drivers of household formation for the past 40 years. Household formation rates (which measure the percentage of people in an age category who head a household) increase sharply when we reach our mid-twenties and continue to increase as we age—simply put, the older we are, the more likely we are to be heading a household. Boomers started reaching their mid-twenties in the early 1970s, creating a wave of demand for new homes. Far from coincidence, the strongest sustained period of new home construction in Canada was in the 1970’s, with housing starts hitting a remarkable 274,000 units in 1976.1

A cyclical downturn combined with lower rates of household formation pushed down housing starts in the early 1980s. However, new home construction remained fairly robust from the early 70s to the early 90s, bolstered by baby boomers entering the housing market in full force. It was the legacy of the boomers—their children, dubbed the echo-boom generation—boosting demand for entry level homes in the midst of the 2000’s that helped lift the housing market through the last decade (although part of the strong performance can be attributed to the need to meet the pent up demand that had accumulated during the nineties).

Notwithstanding the inevitable fluctuations caused by future business cycles, over the long term, new home construction should align with demographic demand—that is, with the formation of new households. Echo-boomers entering age cohorts with higher household formation rates will help keep annual household formation above 200,000 for the decade to come, but the number of new households created thereafter will steadily decline. While overall household formation will remain relatively strong in 2030, the headline number disguises a fundamental shift that will occur over the next twenty years.

 By 2030, just over 60 per cent of new households will be formed in the 75 plus age cohort. If you include younger seniors the figure jumps to a staggering 81 per cent! Thus, by 2030, four out of every five new households will be formed by people in their golden years (65 and over). This is a stark change from today’s situation where growth in households is concentrated in the 45 to 64 age group, while those aged 25 to 34 also comprise a decent share of newly formed households. Given that the vast majority of new households 20 years from now will be formed by seniors, where will that leave the housing market?

Older cohorts are expected to look for smaller, less burdensome housing boosting demand for multiple housing units, especially condo’s and apartments. In 2006, 57 per cent of condo owners were over the age of 50 while 17 per cent were over the age of 75.2 The Conference Board’s Canadian Outlook Long Term Economic Forecast predicts that the share of multiple housing units will increase from its current 47 per cent to 68 per cent in 2030. But exactly how fast the transition to multiple dwelling units occurs, will be influenced by the preferences of the baby boomers; whether they choose to remain in their own homes as long as possible or decide to move to easier-to-maintain dwellings in closer proximity to the services they require. While recent housing market meltdowns in markets like the U.S., U.K, Ireland and Spain caught home builders by surprise, builders in Canada can be fairly certain that big demographic changes are heading their way. As the population ages, construction will shift from single family dwellings in the suburbs to multifamily developments catering to the needs and desires of the soon-to-retire baby boom generation.

1 Based on data for housing starts to 1955 from Canada Mortgage and Housing Corporation.

2 Canadian Mortgage and Housing Corporation, Canadian Housing Observer 2010 (Ottawa: CMHC, 2010) 60. Available from CMHC.

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About Sky Financial

We incorporated The Mortgage Centre-Sky Financial Corp. in August 1992 in Edmonton Alberta. Furthermore we opened offices in Fort McMurray, Cold Lake, Grande Prairie, Red Deer, Stettler, Saskatoon, Moose Jaw and Prince George BC.

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