A Phantom Retirement Crisis?

It’s a common refrain of many policymakers, politicians, seniors’ advocates and housing experts: The recent decline in housing prices disproportionately hurts senior citizens and those planning for their golden years. When he was in office, Prime Minister Trudeau said, “Housing needs to retain its value. It’s a huge part of people’s potential for retirement and future nest egg.” A recent story in The Globe and Mail concluded that “cheaper housing means a retirement crisis for homeowners”, and that “Ottawa does not want to trade one crisis, housing affordability, for another, a middle-class retirement disaster.”

Are these valid concerns? Part of the answer depends on what one believes owning a home represents. Some observers claim the comparison should be to a person who rents housing and invests the differential in the stock market. Others focus on viewing mortgage payments as a means to build equity – equity that should be protected from inflation. The required return on a house investment would be significantly higher if stock market return is the benchmark rather than the protection of an inflation-adjusted investment.

Running the numbers

If you take the perspective that a house represents equity that should not be eroded by inflation, then a simple exercise illustrates that the average senior homeowner in Canada is sitting pretty. If you purchased your house before August 2021, your purchase has maintained its after-inflation value. For example, if you bought a house in July 2020 (at that time $595,000), you would have to sell it for $659,000 today to maintain purchasing power. That average house today (July 2025) would sell for $688,000 — an above-inflation profit of 4.4 per cent over the five-year holding period. In other words, a home purchaser in July 2020 would have maintained their purchasing power beyond inflation (not counting real estate commissions, taxes and legal fees).

Given that 70 per cent of Canadians enter retirement mortgage free, it is fair to assume that most senior homeowners purchased their properties many years ago. So here is an example over a 20-year period. An average home purchase in July 2005 would have cost $250,000 in 2005 dollars. After adjusting for inflation, the required value to maintain the same purchasing power would be $368,000. Yet that same average home would sell for $688,000 in 2025, for an above-inflation profit of $320,000.

This represents a real annual return of 3.18 per cent over and above the inflation rate. Thus, the average annual return unadjusted for inflation over the 20 years is more than five per cent. In other words, the homeowner gets to enjoy the house for 20 years and makes a five per cent annual return on their initial investment.

Would they have had a higher return if they had invested in the stock market? The answer is yes: Stock returns over the last 20 years were about eight per cent depending on the benchmark for Canadian stock markets you want to use. True, houses require new roofs, furnaces and other big expenses. But uncertainty over returns is much higher in the stock market than in the housing market. The housing market never experienced a six-month negative return of minus 40 per cent that the stock market experienced in 2008-09. Furthermore, seniors who are not homeowners would have to contend with the rental market — and all the uncertainty over rent increases, forced relocation and landlord intransigence on delivering promised services.

Let the housing market cool off

The story is largely the same when only Toronto or Vancouver, Canada’s hottest housing markets, is considered. If you bought an average-priced house in Toronto in 2005, for example, you would make an after-inflation real return  of 7.4 per cent when selling at today’s prices (without considering transaction costs).

The lesson is simple: For the most part, seniors are not suffering when the housing market cools. Indeed, anyone who bought a home more than 10 years ago is looking at a real return over the average annual inflation rate of 2.18 per cent. Unless a senior purchased a new property from August 2021 or later, they have at the least maintained the purchasing power of their home after inflation and, in the vast majority of  cases, have enjoyed a positive real rate of return. They may have done better by investing in the stock market, but at least the homeowner didn’t have to deal with fluctuating stock market prices and unpredictable rental rates.

When policymakers focus on the fallacious argument that housing prices need to grow to protect the current generation of seniors, they adopt policies that prioritize price stability over increasing the supply of housing.

The truth is that the current generation of senior home owners are safe – the equity value of their home has risen faster than inflation. Housing prices that are now moderately declining towards long-term trends are unlikely to threaten current seniors. There may be good reasons to restrict the supply of new housing — but don’t put the blame for those policies on the backs of Canada’s seniors.