Baby Boomers sharing assets to fund their kids' homes

Baby Boomers, arguably the wealthiest generation in decades, are aging and passing down some of their assets to their grown children in record numbers.

Financial advisors like Don Campbell, a senior analyst with Real Estate Investment Network (REIN), calls this significant passing of assets between Baby Boomers and Millennials, “wealth transfer.”

The reasons for this growing phenomenon are many. In addition to the country’s high real estate prices in major key cities, such as Vancouver, Calgary, Edmonton and Toronto, wealth transfer can be attributed to the federal and provincial governments’ stricter lending rules and interest rate hikes.

“The new mortgage stress testing introduced in January squeezed the budgets of first-time buyers, paving the way for even more Baby Boomers having to assist their children to get into the housing market,” notes Campbell.

According to Statistics Canada, there are 9.6 million Baby Boomers (or 30 per cent of the population), born between 1946 and 1965, many of whom are anxious to see their cash-strapped Millennials break into the housing market.

That wealth transfer, says Campbell, “is changing the dynamic of the Canadian real estate market.”

One notable difference is the rise in multi-generational housing, bringing generations together under the same roof. Over the last few years, architects and developers have responded to this ongoing shift by creating flexible units and newer solutions, such as laneway homes.

“This trend is normal for many immigrant families, but is now catching on with Baby Boomers in larger centres,” explains Campbell.

“We are seeing a rise in Baby Boomers building spectacular suites in their homes and giving up the main home to their children or constructing laneway housing on their property for them or their adult children.”

It’s no wonder. The 2016 Statistics Canada Census highlights the fact that the number of young adults living in their parents’ home continues to rise. Today’s young adults are also more likely to be at home for an extended stay compared with previous generations, according to the report.

“In 1981, seven per cent of children between the ages of 25 to 29, and 32 per cent of 20 to 24 were still living at home. Today, those numbers have risen to 27 and 58 per cent respectively,” notes Campbell, adding this growth can also be blamed on the lack of affordable rental builds.

In addition, the 2016 Census added a new age category; 11 per cent of young adults between the ages of 30 to 39 are living at home.

“Baby Boomers are giving their children their inheritances early as a way to gift or loan their children the money in order to motivate them to get out of the family home,” adds Campbell.

“This transfer of wealth is opening doors to homes and borrowing options otherwise unavailable to many Millennials.”

Another smart wealth transfer strategy is to purchase real estate for your university-bound children.

“When kids head off to university, parents should consider buying properties in university towns,” says Campbell. “These should be large enough so that their kids can have roommates to help defray the costs.”

Then, when they finish their university degrees, parents can take the equity out of the property and pay off their children’s post-secondary expenses.

However, Campbell cautions parents to think about their retirement plans before gifting their children money from the equity in their homes.

“The current remortgaging rules and higher interest rates are devaluing homes and affecting Boomers’ ability to help their children,” Campbell adds. “The federal and provincial governments’ attempt to push down home values is putting the middle class behind the financial eight-ball.”

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