Substituting Homeownership For Pensions Undermines Solidarity

Last week, Statistics Canada released its latest Survey of Financial Security (SFS), reporting detailed information about the assets and debts of a representative sample of Canadians across age and income groups in 2023. In keeping with other recent data produced by Canada’s statistical agency, this one confirms a troubling, if unsurprising, trend: inequality continues to grow. This latest survey, however, suggests that homeownership may be a significant driver of our widening wealth disparity.

According to the SFS, homeownership and pensions are the two primary explanations for wealth inequality between Canadian family units, across all age groups. As Rachelle Younglai summarized in The Globe and Mail, “The youngest homeowners typically have a net worth at least 10 times that of renters in the same age cohort, and the gap widens to almost 30 times for those nearing retirement age.”

As the release itself highlights, older Canadians approaching retirement (in the 55 to 64 age range) who own their principal residence and have an employer-sponsored pension plan have a median net worth about $1.4 million more than those who have neither. Renters without a pension plan, by contrast, had a median net worth of only $11,900 last year.

Moreover, homeownership is the primary factor explaining the higher net wealth of some Canadian families. For example, among the age group approaching retirement, families who owned their home but had no pension plan still had median net wealth of $914,000. By contrast, those who had a pension but did not own their home had median net wealth of only $359,000.

At the same time, the wealth gap is also widening between younger people. Households where the highest earner was under 35 years of age experienced an average 179 per cent wealth gain. But among younger families too, it was also homeownership that was driving the biggest wealth gains. Between 2019 and 2023, the median net worth of younger families who owned their principal residence increased from $142,800 to $457,100.

Among younger families without a principal residence or an employer-sponsored pension plan, median net worth still increased by 157 per cent. Yet, in dollar terms, this amounted to net worth rising only to $27,000, up from $10,500 in 2019.

With growing numbers of Canadian families shut out of homeownership, while access to employer-provided pension plans declines, the SFS reports that young workers are trying to save and increase their wealth in other ways.

The share of young families who did not own their home or have a pension but who have a net worth greater than $150,000 increased from 5 per cent in 2019 to 15 per cent in 2023. But again, real estate ownership is the principal way members of this group have amassed wealth.

The median wealth of families in this group who owned real estate other than a primary residence was $350,000. By comparison, the median wealth of those in the group with Registered Retirement Savings Plans was only $35,000, while for those with a Tax-Free Savings Accounts it was just $20,000.

As troubling as the survey’s findings are, they almost certainly understate the extent of wealth inequality for a number of reasons.

First, the SFS is a representative sample covering only the 10 provinces, and excluding Indigenous peoples living on reserves. This leaves out many people living in Canada’s north, a large number of whom experience considerable economic insecurity. While the SFS provides useful insights on the financial circumstances of Canadians, it involves only a 45 minute questionnaire completed with almost 40,000 respondents.

Moreover, being a relatively small sample survey, it’s unable to gain access to individuals and families with very high wealth. For the purpose of this survey, StatCan divides households into tiers, the highest of which being the top 5 per cent of wealth holders. The share of wealth held by the top 1 per cent — or even 0.01 per cent — of households is therefore necessarily underestimated. Given what we already know about the concentration of income and wealth at the very top, along with widening inequality, this is a significant shortcoming.

Last, the survey’s focus on homeownership masks the role played by other forms of asset ownership in driving wealth inequality. This is related to the paucity of representatives from the very wealthy in the dataset. Those with very high wealth tend to hold much larger portions of their fortunes in the form of assets other than their principal residence. Some own other forms of real estate. But more importantly, the very rich own stocks, bonds and other financial assets. Their homes, while of high value, are rarely the crown jewel in their treasure of wealth.

Nevertheless, this latest iteration of the SFS exposes the deep problems generated by treating homeownership as the primary method of wealth accumulation, and therefore economic security, for Canadians.

As StatCan summarizes: “The longstanding expectation is that families build up their assets and reduce their debts over their working years and spend down their assets during their retirement years. Canadian families with low net worth will be more likely to need to work longer, may need more government support, and may be at greater risk of poverty.”

Yet this “longstanding expectation” (i.e., that families should accumulate financial assets, largely in the form of a home, as a form of retirement savings) has always been problematic. A home is a poor substitute for a pension or for other forms of public support that guarantee security in retirement.

For starters, people who sell their home to fund retirement still need somewhere to live, which can mean exposing themselves to the precariousness of the private rental market. As home prices skyrocket, rents aren’t far behind.

Additionally, banking on and encouraging homeownership as a method of retirement saving has contributed to the asset price inflation that is pricing so many people out of housing, including rental housing. It seems a wide range of policymakers and commentators recognize that encouraging homeownership as the primary means of financial security is “dysfunctional” and unsustainable. Added to this problem has been the uneven impact of interest rate increases, which slightly decreased the wealth of the least wealthy homeowners while the wealth of the most well-off increased.

Perhaps most importantly, substituting homeownership for pension coverage individualizes retirement savings and undermines worker solidarity. Instead of workers fighting together for broad retirement security in the form of defined-benefit pensions, those lucky enough to own their homes are encouraged to consider only the performance of their personal assets.

We can’t address growing inequality and widespread economic insecurity by blindly promoting homeownership. Instead, we need solidarity in the forms of robust income supports and universal public services, undergirded by a progressive tax system based on solidarity and collective obligation.

A key missing piece to this tax and policy assemblage in Canada is a wealth tax. Even a modestly set wealth tax that forced the very richest to pay a small percentage of tax on their financial and other assets could generate considerable revenue to help fund our health-care and education systems, and yes, provide retirement security for all.

At present, we have an economic and social addiction to rising home prices. For decades, encouraging homeownership and banking on rising house prices have substituted for providing economic security through social policy. This has always been a recipe for disaster, and now its contribution to widening inequality is becoming clearer.

Ending this failed experiment is long overdue.

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