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The Toronto market that will be
It's true that the population of Toronto, like the rest of the western world, is getting older -- but Toronto's population is not old now, and it won't be old two decades from now, when only 16 per cent of its residents will be 65 or over. That's a significant increase from the current 12 per cent, but not nearly enough to make seniors the dominant group.
Throughout the western industrialized world, young people are having fewer babies than their parents did and old people are living longer than their parents did. That demographic combination is the basis for the phenomenon of population aging, which means simply that the average age is increasing. But this process takes place gradually, so forecasts of dramatic change are usually off base.
It's easy to confuse old with older which is why some writers make false assumptions about population aging. In 1996, The Globe and Mail launched its hypothetical "Boomer Portfolio," a collection of stocks that seemed well positioned to benefit from the changing needs of aging boomers, the huge group born between 1947 and 1966 that comprises almost a third of the Canadian population. It was an interesting concept, but there was a flaw in the portfolio: it contained two companies, one in the nursing home business and another in the funeral business, that were decades away from attracting much business from boomers. In 1996, the boomers were aged 30 to 49, hardly prime candidates to become residents of nursing homes or cemeteries. Even in 2021, aged 55 to 74, not many boomers will be ready to move into nursing homes. And given that average life expectancy is now about 79, the funeral business won't take off until around 2030.
That said, it's a fact that the older boomers are nearing the stage of life when heart attacks, strokes, cancer, and other serious illnesses become more prevalent. Many boomers will die between now and 2021, while at the same time their children, the echo generation, will produce a mini-baby boom of their own. As a result of those demographic changes, Toronto two decades hence will no longer be boomer city.
The dwindling of the power of the boomers will probably be the most important demographic phenomenon Toronto will experience over the next two decades. Since the 1970s, the city has been a magnet for ambitious boomers from all over the country -- a cohort that, because it has so many members, has wielded tremendous power. Boomers triggered rent controls during the 1970s as they flooded into the housing market for the first time. In the 1980s, they sent real estate prices soaring. Then, during the 1990s, they discovered mutual funds and stocks, prompting the greatest bull market ever.
As we approach 2000, the boom is at the height of its influence. Boomers in their 40s and 50s are running the large corporations, governments and universities. To the chagrin of younger boomers (those in their 30s) and the baby busters (now in their 20s), older boomers are still clogging the hierarchies of all these organizations.
Yet the beginning of the end of the big generation's dominance is already evident. Companies are instructing their recruiters to give preference to younger people. Complaints of ageism are already being heard from boomers in their 40s and 50s who find themselves in the job market.
By 2021, all of that will be ancient history. Nobody will talk much about the baby boom any more. According to the projections of economist Tom McCormack of Strategic Projections Inc., people born after the boom in the GTA will outnumber boomers and those born before them by the year 2004. And by 2021, of the 6.4 million people in the GTA, 4.4 million will be post-boomers, 54 or younger; only two million will be boomers or pre-boomers. More significant, among those of voting and working age, the boomers and their elders will be outnumbered by younger Torontonians after 2013.
Let's take a closer look at how the dwindling of the boom and other demographic shifts will affect the real estate market in Toronto two decades in the future.
The front half of the boom, people born between 1947 and about 1957, have been lucky in real estate. In the late 1960s and early 1970s, when the first of them hit the rental market, a spacious apartment -- one floor of a house in the Annex, for example -- could be had for less than $200 a month. And when those same people were ready to buy, a solid Victorian house in a good downtown Toronto neighbourhood sold for $100,000 or less. House prices moved up during the 1970s, but it wasn't until most of the boom had flooded onto the real estate market in the 1980s that they really took off. At the same time, in response to boomer demand, the suburbs burgeoned. Toronto house prices peaked in 1989 and then plunged 25 per cent over the next two years, because most of the boomers who could afford a house had already bought one. Prices recovered moderately through the latter half of the 1990s after the recession ended and younger boomers, those born in the 1960s, could afford to move into the market.
The real estate frenzy of the 1980s already seems a distant memory, and demographics offer no reason to expect it to be repeated. In fact, the decade about to begin will be fairly quiet, because the bust, the group entering its house-buying period, is only about half the size of the boom.
A growing number of boomers will choose early retirement during the first decade of the millennium, but that doesn't mean they will want to sell their houses. Less than 20 per cent of retirees move out of their homes when they stop work; the other 80 per cent stay put, partly because they know the extra space freed up when the kids move out will come in handy when future grandchildren come to visit. Most people don't trade in their houses for more compact accommodation until they are in their 70s.
The real estate market will pick up during the second decade of the new century when the echo generation, which is larger than the bust, starts house hunting. For boomers who want to cash out of real estate, the arrival of their offspring in the real estate market will offer a window of opportunity that will last until about 2025. After that, the market will go soft again, because the following wave of house buyers, today's preschoolers, are a comparatively small cohort.
Boomers who play their real estate cards right, and enjoy a bit of luck as well, should be able to sell their house to a member of the echo for enough to buy a condo in the city and perhaps a country place as well. The trend toward splitting time between the city and semi-rural areas such as Collingwood and Kingston, will gather momentum as more of the boomer generation moves into its 50s. Some of those who move into exurbia will opt for communities built around golf courses. These will be adults-only communities, many with security gates that visitors have to pass through.
Gated communities are never going to be cool, and the aging boomers who decide to move into them are probably going to be a bit embarrassed about it. But boomers, as they age, won't be much different from earlier generations; older people have always been security conscious for two reasons -- they are more vulnerable physically then when they were young, and they have accumulated some things worth stealing. Besides, rental apartments and condos have had restricted entry systems for decades. Gated communities merely offer people who prefer to live in a house the extra security that apartment dwellers take for granted.
On the commercial side, the impact of the large echo generation will trigger new construction during the first decade of the new century, earlier than in the housing sector. That's because young people join the workforce about 10 years before they look for their first house. By 2021, the echo generation's workplace needs will have been accommodated. Then it will be the turn of the millennium bust, the group now emerging from the maternity wards, to enter the workforce, but that group will be too small to drive a great deal of new office construction.
Meanwhile, we can expect the trend toward renewal of old office structures and factories in the core to continue, partly because aging Torontonians will want to retain parts of the city that remind them of their youth. The late William Kilbourn, historian and city politician, liked to say -- only partly in jest -- that the Toronto-Dominion Centre, a work of the famous modernist architect Mies van der Rohe, should be designated a historic site so that it would not be destroyed in the name of redevelopment like so many other great Toronto buildings. By 2021, this set of towers, which dates from the 1960s when the boomers were very young, will be so designated.
Source: Footwork Consulting Inc.
January 24, 2007 in What's next (in real estate) | Permalink
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Posted by: adviser | Jan 24, 2007 1:09:59 PM
Good article. Interesting to see how the future will unfold. By 2050, when most of the boomers have passed, and also have passed their money, what will be the effects. Think about those poeple who have a condo and a cottage, and one or two kids. Is the wealth in Canada, and Toronto, going to rise quickly with the passing of boomers?
Posted by: Snap Up Real Estate | Jan 24, 2007 12:46:54 PM
