A recent interview with Australian millionaire Tim Gurner has gained traction – particularly on social media – after TIME reported his comments that millennials cannot afford to buy homes because they insist on buying “smashed avocado for $19 and four coffees at $4 each”. Obviously this is hyperbole and the point he is using food spending to make an argument that millennials are spending too much money on frivolous purchases. I don’t know about you, but I’m bored with inflammatory rhetoric – I want data. I went looking to see how much validity is behind his argument. After an evening on the Statistics Canada website I’ve crunched the numbers.
Full disclosure, I am a millennial; I can’t afford to buy a house; I don’t like avocado; and I believe that – perhaps – the discrepancy between millennial budgets and housing prices results from a combination of complex economic factors – not avocado toast spending.
We should start with the direct claim that Mr. Gurner is making – namely that people are spending more money on take-out food than in the past. How much truth is there in this argument? According to Statistics Canada, in 1997 approximately 21% of Canadian household food spending was spent on food purchased from restaurants. By 2015, this had increased to an average of 29%. This means that the amount of household spending allocated to restaurant meals such as the infamous avocado toast has increased by 8%. So if we’re doing this Mythbusters style, then we should admit up front, that it is CONFIRMED that people are spending more on takeout.
That’s just the beginning of the story though.
Next we should take a look at the cost of housing. According to Statistics Canada, in 1997, the average annual total cost of shelter (rented or owned) was $9,463. By 2015, this had increased to an average of $15,802 for shelter. This is a 66% increase in shelter costs. If we break this down, the average renter is spending 68% more than in 1997 and the average homeowner is spending 83% more.
When we talk about the high barrier to entering the housing market, it’s important to keep in mind that the challenge is not just the considerable cost of a down-payment. Part of the challenge is also the fact that a 68% increase in rental costs represents a considerable decrease in disposable income that tenants have available to put aside to save for a first-time purchase.
We also need to consider that an 83% increase in expenses related to homeownership (including mortgage payments and condo fees) is additionally prohibitive. Even those who may be able to afford a down-payment could struggle to afford ongoing expenses.
Income Levels [v]
The last piece of the puzzle for the purposes of this article is income levels. For food and shelter costs, I was only able to easily find 18 years of data (1997 – 2015). For income however, I was able to find data for a 35 year period (1976 – 2011). So far, we have seen fairly sizable increases in spending so we should expect to see a corresponding increase in income. However that is very much not the case. According to Statistics Canada, in 1976, the median after-tax family income (including all family types) was approximately $48,000. By 2011, the median had increased to approximately $50,700. This is an increase of only 5%.
To recap: over a period of 18 years, housing expenses went up by 66%. Over a period of 35 years income only went up 5%. I would expand on this, but I don’t think the implications of those numbers need much explaining.
Pull it Together
So according to an Australian millionaire, the primary reason that people are having challenges affording homes is because they are spending too much money on food. According to real-world data, increases to housing costs have drastically outpaced increases to income. This data is of course limited to Canadians but I suspect it is reasonable to assume that the same trends have occurred in other countries. Also important to remember is that these are only some of the factors that impact the housing market and personal finances.
It cannot hurt for someone who is saving for a home to review their spending habits and see if there is any way to cut back on unnecessary expenses. However, suggesting that poor spending habits are why an entire generation is encountering difficulties entering the housing market is an insulting oversimplification. Publishing arguments that boil down to “making this one change can save a generation” may drive website traffic and attract social media attention, but the reality is that these are not reasonable solutions to complex economic challenges.
[i] Statistics Canada. Table 203-0002 - Survey of household spending (SHS), household spending on food, by province and territory, annual, CANSIM (database). (accessed: May 15, 2017)
[ii] Statistics Canada. Table 203-0021 - Survey of household spending (SHS), household spending, Canada, regions and provinces, annual (dollars), CANSIM (database). (accessed: May 15, 2017)
[iii] Statistics Canada. Table 203-0003 - Survey of household spending (SHS), household spending on shelter, by province and territory, annual, CANSIM (database). (accessed: May 15, 2017)
[iv] Statistics Canada. Table 203-0021 - Survey of household spending (SHS), household spending, Canada, regions and provinces, annual (dollars), CANSIM (database). (accessed: May 15, 2017)
[v] Statistics Canada. Table 202-0605 - Median after-tax income, by economic family type, 2011 constant dollars, annual (dollars), CANSIM (database). (accessed: May 15, 2017)