Class dynamics have been transformed in Canada. Income now matters less. Home equity matters more, especially for those who bought decades ago.
Older Canadians worked and lived in an era when blue-collar jobs could pay enough to purchase a home. With the wealth they have since acquired from rising home values, many have ascended to the ranks of the affluent.
The financial industry recognizes this. Public opinion does too. It’s time for governments to catch up, by revisiting social-spending priorities and revenue plans to pay for the investments that citizens want.
“When your house is rich, you are too,” says Equitable Bank in a commercial depicting a retiree who hugs her suburban home because it lets her eat caviar for brunch. All she needed was a home equity line of credit to unlock wealth she gained from surging home prices.
This commercial reveals the dramatic change in the class status of many Canadian retirees.
Consider a single woman with $22,000 in retirement income – around the threshold to qualify for Canada’s guaranteed income for seniors. If she is a renter, she is likely poor. If she owns her home outright in Fredericton or Saskatoon, few would describe her as affluent.
But if she has a house in a city such as Hamilton, Victoria, Kelowna, B.C., the GTA or Metro Vancouver, her home will often be worth seven figures.
In the past, Canadians would likely have judged the woman to be less affluent than a young lawyer making $250,000 annually. Only the top few per cent of earners in Canada make that much.
Yet imagine if this young lawyer is a renter, or has taken on a $900,000 mortgage to afford a million-dollar home – scenarios which are common in cities across the country. Then Canadians are as likely, or more likely, to judge the low-income woman whose home is paid off to be richer than the high-earning young lawyer, according to an online poll of 1,010 adults by Research Co. for Generation Squeeze.
Our country needs older Canadians with housing wealth to acknowledge their relative privilege, if we are to fix the failure of past governments to plan how to pay for the services that baby boomers use in retirement.
So I was heartened by a note I received from Mike, a retiree in Victoria. He CC’d me on an e-mail sent to Steve Ranson, the CEO of Home Equity Bank.
“I am very dismayed at your latest television commercial for CHIP Reverse Mortgages,” Mike wrote to Mr. Ranson. “It depicts a young couple, with an infant, looking longingly at a house, only to be told by a very nasty senior to get their feet off her grass. In a failed attempt at humour, it reinforces the image of my generation of seniors (I’m 72) as a group of self-righteous, cold-hearted, real-estate-rich egotists who lack any sensitivity or empathy for the struggles that young families are facing in the current housing market.”
Bravo Mike, I say. And bravo the many other Mikes out there. Polling shows three-quarters of Canadians the age of 55-plus agree that “rising real estate prices benefit many people who already own a home by growing their wealth.”
In response, provincial and federal governments should update policy to reflect this reality, by reconsidering how to put to work the relative wealth enjoyed by some seniors.
On the spending side, retirees with individual incomes of more than $80,000 still receive full Old Age Security payments, regardless of their housing wealth. By contrast, the clawback for Canada Child Benefits begins when household income surpasses $35,000 – an income level at which you can expect most are renters - and is clawed back still further when that income exceeds $75,000.
These government investments can be better targeted, to promote fairness between generations, and possibly to save public coffers some money.
On the revenue side, governments must reconsider how affluent seniors should contribute tax dollars based on their housing wealth.
More money is needed to pay for the medical and long-term care they will personally consume, because these costs are accelerating faster than those earmarked for other parts of provincial budgets.
It’s needed to show loyalty to those less fortunate in their generation who also need care and income security.
And it’s needed to safeguard their legacy, by reducing harms that younger generations inherit – such as the costs of expensive housing, child care, postsecondary education and climate-change adaptations.
“You’re richer than you think” has been a Scotiabank motto for years. And that’s now the reality for many in a generation of retired, urban homeowners. Government policy about spending and revenue collection must adapt to that reality.
Dr. Paul Kershaw is Founder, Lead Researcher & Executive Chair of Generation Squeeze. He is a policy professor in the UBC School of Population and Public Health, and Director of the UBC Masters of Public Health program.