Vancouver’s first-time homebuyers ‘gifted’ average of $180K from parents

The average amount of financial help first-time homebuyers received from their parents in Vancouver this year was a whopping $180,000, the highest in the country, according to a new study.

A new report from CIBC set out to measure how much familial help people in Canadian cities are getting. In the past year, “gifting” accounted for 10 per cent of all down payments in the country, totalling $10 billion. For first-time purchasers, just under 30 per cent said they got this kind of help, with most saying it was their primary way of making the payment.

“Given the trend and the size of gifting, it is clear that this phenomenon is becoming an important factor impacting housing demand and therefore home prices
in Canada,” the report reads.

“By province, the most expensive provinces naturally see the largest share of gifting. Zooming in on Toronto and Vancouver, illustrates the dramatic increase in gifting those cities.”

In Toronto, the average gift for a first-time buyer is $130,000. That’s $50,000 less than in Vancouver. When it comes to so-called “mover uppers” the gap is wider, with Toronto seeing an average of $200,000 while in Vancouver it’s $340,000.

Both the impact and perpetuation of wealth inequality revealed in these figures are noted.

“Gifting clearly works to widen the wealth gap between receivers and non-receivers. That increase in the gap is much larger than the actual gift size as it might make the difference between owning and not owning a house, with receivers potentially benefiting from future home price appreciation,” the report says.

“Furthermore, gifting also works to reduce the size of the mortgage and therefore leads to significant savings on interest payments over time.”

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The data raises some interesting issues when it comes to notoriously unaffordable Vancouver, according to Andy Yan, Director of the City Institute at Simon Fraser University.

First, he says, it shows how people who don’t have access to “the bank of mom and dad” are disadvantaged.

“So long as you can pick your parents, you’ll be just fine in this housing market,” he says, adding that remark is meant tongue in cheek.

Second, he says it shows how out-of-step housing prices are with local, household incomes.

“Out of the five cities in the report, Vancouver actually has the lowest household income,” he notes.

“It’s another kind of characteristic of this kind of unaffordability where housing is not attached to local household income. So, some households who are fortunate enough to have access to this pre-existing wealth are able to enter the housing market, but for those who don’t have that pre-existing wealth, it’s yet another barrier.”

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This issue is not exclusive to Vancouver, but something that the report shows is Canada-wide, with the average gift for first-time homebuyers having risen to a record-high $82,000.

“I think for a long time we thought that wealth is something that we just earned through how hard we worked. I think that this is a measure of, really, how it’s not only about how hard you work, but who your parents are, and who perhaps their parents were. It is another measure of about that type of inequality between Canadian households,” Yan says.

“It really touches upon really the levels of inequality that are growing in Canada and what families are doing in terms of spanning the gap between local incomes and housing costs.”

Vancouver’s dubious ranking as the city with the highest average gift amount likely does have to do with the sky-high home prices, Yan says, adding there are a number of things from foreign investment to the mortgage system that go into making buying a home more costly.

“It goes into really the importance of pre-existing wealth for some households to enter the housing market in the city of Vancouver as opposed to any other city in Canada.”

Ultimately, Yan says, what is being shown here is an intergenerational wealth transfer. However, the data doesn’t tell us much about how and why people may be making the decision to help their kids out with the purchase of their first home.

With people living longer, Yan says these gifts may well be part of a trend where parents decide to transfer some of what they have instead of waiting to leave an inheritance. In some cases, he says the gifters could be deferring retirement and getting this money by cashing in their RRSP’s. The desire parents have to help children achieve housing stability sooner may be an investment in making sure that their kids have the resources they need — be it money or extra space — to help their parents out when they can no longer care for themselves.

“I think does actually bring in some pretty interesting questions about the gifters.”