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)
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