In Toronto, where my family lives and where I was lucky enough to spend the holidays, a housing affordability crisis for the young is reaching fever pitch.
Taking together, the good quality of life and a spot in one of the gleaming apartment towers overlooking Lake Ontario, you can see why; everyone wants a piece of the action. But with the average house price now nearing $1.5m, increasing some 25% in the last year alone, a Hunger Games-style competition for property is underway in which only those with the deepest pockets win.
Indulging my morbid fascination with the sheer unaffordability of the place a little further, I pass on some harrowing figures from a CIBC Economics report picked up in conversation with my brother. Take, for example, that the average gift from the Bank of Mum and Dad to first-time buyers in the city now tops $130,000 (£76k), used by roughly one in three to afford a deposit. Or that, with a lucrative five per cent commission fee, Torontonians are now moving in droves to become estate agents, equating to roughly one in every 88 people who work in the city – more than the number of teachers. And worse yet, based on the combined trajectory of house price and wage rises, that we are five years from the point where it will be mathematically impossible for the median household to even save for a deposit during the course of a working life.
I mention Toronto, not for being exceptional, but because it is an ominous sign of things to come for many large cities in the West. In Scotland, the letting portal DJ Alexander reported yesterday that average home prices rose by 21.3% between March 2020 and November 2021, beating a UK average of 16.3%. Indeed, house prices in Edinburgh, too, are also set to hit ten times the median salary, according to Rettie & Co.
Writing in today’s Financial Times, Neal Hudson suggests there are no silver bullets to the so-called “financialisation of housing”. Although likely interest rate rises in the months ahead may curb prices, the knock-on effect to mortgages would make them that much less affordable to first-time buyers. And for those wishing a rapid market crash in property values of, say, a third: be careful what you wish for. Bubbles also impact employment and potential earnings. Besides, based on current rates, we may be back to where we started in a mere 18 months.
For radical solutions, look to Berlin. Last year, the city voted in favour of a landmark referendum for the council to expropriate properties owned by large corporate landlords – essentially, socialising housing. The campaign targeted companies, often single landowners, holding 3,000 or more apartments which, following the passage of the referendum, will gift the council some 240,000 or 11% of all properties in Berlin for affordable sale.
While the intervention may seem heavy-handed and Berlin’s case study is in its early days, I sense the alternative costs and associated drag on life opportunities will be simply too much for voters to stomach as we accelerate out of the pandemic. Toronto offers one dystopian vision for the future, but Berlin may come just after that.