Why do homes cost so much, and why are young people being locked out?

Your parents bought their home with a few years’ worth of salary. Today, in Metro Vancouver, a home is worth almost ten times what the family living in it earns in a year, and in many major cities around the world the story repeats itself. And no, it’s not that your generation works less or spends too much on coffee and Spotify.

The short answer is that there isn’t just one reason. The long answer begins in 1971, runs through a dollar that lost its anchor, land that exists but can’t be used, houses turned into banks and families who can’t agree, and ends with you… with what you can actually do to stop paying for someone else’s wealth and start building your own.

Let’s take it one step at a time.

01Money and credit: half a century of endless debt

To understand why a home costs what it costs today, we need to go back to August 1971. That year, U.S. President Richard Nixon decoupled the dollar from the gold standard, which required the dollar to be backed by gold and helped it hold its value, since gold is not easy to produce. Until then, the monetary system operated under the Bretton Woods model: foreign governments could exchange their dollars for gold at a fixed price, and almost every other currency was tied to the dollar. Gold worked as the anchor that limited how much money could be created and, with it, how much could be lent.

Once that anchor was released, money came to depend solely on collective trust in whoever issues it: central banks and the issuers of debt. Since then, central banks have had the power to expand the money supply as they see fit, and banks multiply it by issuing credit. It all depends on where the economy stands: when the economy runs hot, rates go up; when it cools, rates come down to speed it up. Just like an internal combustion engine: you accelerate enough not to stall, but you ease off enough not to burn it out.

Where does new money go?

In our collective imagination, new money is printed, so much of it that you could swim in it like Scrooge McDuck. The reality is that it is, but with nuance: new dollars and other fiat currencies are created every day, but issuing them is no longer physical; it has become purely digital. Unfortunately for us, that increases the incentive to create more money with just a few keystrokes on a computer, leaving behind the romantic process of producing the raw materials that make up a banknote, manufacturing it, distributing it and safeguarding it. But we can save that topic for another article: where will our real assets go in a digital world?

Back to credit… in fact, in real estate almost nobody buys a home in cash. When credit is cheap, the same monthly payment stretches to a bigger loan, and sellers price in that borrowing capacity. That’s why the price of a home stopped reflecting what a family earns and started reflecting how much the bank will lend it.

What has changed over the last 50 years is that the act of buying a product or service, receiving it and considering it your property has been in decline. Ownership is in crisis… we now have a kind of “lease” that simulates ownership, only in a more sophisticated form.

Wages always arrive late

The other half of the problem is that wages don’t adjust at the same pace. When inflation rises, the prices of food, rent and gas move within months; raises arrive, if they arrive, at the next annual review or the next contract, and they rarely make up for what was lost to inflation and the debasement of fiat currencies. Those who already own assets watch their wealth revalue with inflation (go up in price). Those who only have their salary watch their savings lose value every year.

That gap, repeated over decades, is what separates one generation from the next. Our parents bought with a few years of salary; today, in the big cities of Canada and the rest of the world, a home can cost ten or more. And it’s not that people work less today… work, over the years, has proven to demand the same time, but the money it’s paid in is worth less and less against the assets that work is meant to buy.

Not every economist gives the end of the gold standard the same weight… many attribute more to interest rates, lending rules and the lack of construction. But on what can be observed, almost all of them agree: abundant credit raised the ceiling on what a buyer can offer, and wages stayed below it.

02Supply, land and regulation

The other thing that affects real estate supply is, precisely, the excessive regulation of housing inventory. People say there’s no land available, but that isn’t entirely true. Land is a finite resource, yes, but it isn’t scarce: there are thousands of hectares available, and much of the territory of many countries is, in fact, empty land. What makes the difference is whether that land can be used, whether for commercial, industrial or residential purposes. So the next time you hear there’s no land, ask yourself: how true is that?

Today, governments have the power to determine where someone’s property begins and ends. Several decades ago, a person could arrive at “no man’s land,” say “from here to there is mine” and take it: first in practice, then socially and, in the end, legally, with the government’s approval. Today that is much harder, if not impossible. When it comes to state-controlled land, natural, agricultural and Indigenous reserves choke the supply of real estate, and whatever the reason or ideology behind it, it is something that can be measured and observed. But in the case of Indigenous reserves, the problem was never whose land it was, but who decided over it… for decades it was the federal government, not its owners. Now that the Squamish, Musqueam and Tsleil-Waututh Nations decide over their own land, they are building thousands of homes in Vancouver. Was there a shortage of land, or a surplus of regulation?

On top of that, the little developable land there is requires many governmental, financial, logistical, fiscal, environmental and social processes, and that discourages large-scale development of everyday housing. Nor is the answer to create an oversupply: that would cause an imbalance between supply and demand, unsold inventory and, in turn, potential losses for investors. Nobody wants to risk overbuilding and watch their money sit idle in empty properties, which, by the way, is partly how real estate bubbles begin.

03Demand and speculation

In nature, when a population starts to grow too fast, it throws the ecosystem off balance: that population needs enough resources and space. An ecosystem is never static; it operates in dynamic equilibrium. When it can no longer support the demand, it exceeds what ecologists call its carrying capacity: the change crosses the system’s resilience threshold and triggers a chain-reaction collapse.

This connects well with the rise in newcomers. With more people arriving than homes being built, the housing ecosystem starts to wobble: property becomes more expensive, available living space shrinks and more people have to share the same space to pay the same rent. And note: unlike in nature, where species have little or no power over their ecosystem, we humans have the ability to adapt our environment: to create more space and use available resources more efficiently so that more people can have access to them. That’s why the problem isn’t that more people arrive, but the disincentive to create more resources.

Now let’s talk about speculation. We call it real estate speculation when a seller puts a property on the market that is overvalued relative to its real usefulness. Broadly speaking, real estate is currently overvalued, beyond the cost of building materials, the value added by construction and development, and the appreciation that comes from location. Property has become a second bank for people. In fact, many people who distrust banks prefer to put their money into something tangible and real, which is entirely respectable.

Add to that the fact that real estate agencies and developers, who have sales targets to meet, tend to create the expectation of a safe, profitable and scalable investment, which, for any investment, real estate or not, isn’t quite right. Every investment carries risk, and that risk is often downplayed or hidden, until you see it reflected in maintenance costs, taxes, regulations, wages and fees.

On the other hand, while real estate agencies do play an important role in transactions, since they speed up sales and handle the logistics and paperwork both parties need, it is important that all of us who work in this sector uphold a strong work ethic. Precisely so that we don’t hold back supply and inflate the perceived value of what’s available, but instead create the conditions for more supply and more construction, built faster. That way we help people have a better chance of buying a property, which means more transactions, more movement and a bigger, faster economy.

04Legal and tax friction

There are costs that don’t raise the price of a home, but do make it harder to reach. We’re talking about taxes and fees. In British Columbia, the buyer pays the property transfer tax on the same day they get the keys, and if the home is new, GST applies too, a tax similar to Mexico’s IVA. On top of that come the speculation and vacancy taxes, which aim to penalize those who hold on to properties, but which in the end also land on the buyer’s bill. They aren’t the whole reason a condo costs what it costs, but they are the reason many young people and adults reach closing without enough cash. If buying a property already requires credit, that is, money you don’t have yet, these costs are paid upfront, often without knowing about them until you see them on the bill.

In Canada, by contrast, legal costs are much lower: a lawyer or notary charges a fraction of what it would cost in other countries, because property registration is central, digital and guaranteed by the State. In Mexico, for example, it’s another story: registering a property deed costs several times more, not to mention the process can take several months.

But the real brake in Mexico isn’t at the notary’s office; it’s in the family. How many houses do you know that have been shut for years because the owner died without a will? There is so much land trapped in intestate estates and disputes between siblings that the government has to run campaigns every September to get people to make a will. That land exists, but it isn’t for sale, and while nobody agrees, the market is left with less supply.

In Canada this weighs little; in Mexico, a lot. And therein lies the lesson for anyone who owns property.

Wealth is built, first and foremost, with order.

05Why young people are hit hardest

Everything above hits anyone who wants to buy, but it hits harder those who are just starting out: someone with a salary, if they have one, and no assets.

Saving for a down payment today is like climbing an escalator that’s going the wrong way: every year you save a little more, but home prices rise faster than you’ve been able to save, and the down payment you needed last year is no longer enough this year. How many young people have you met who have been “about to buy” for years?

And when you finally manage to put together the down payment, along comes our dear friend, the bank. In Canada, to give you a mortgage, the bank assesses you as if you were paying a higher rate than you actually will, to make sure you can cope if rates go up. It’s a reasonable protection, but with a first salary, fresh out of university, with student loans or credit cards, that test greatly reduces how much they’ll lend you.

And pay attention to this: you and your money aren’t only competing against other young people; you’re also competing against people who already own a home, sell it and arrive with years of accumulated appreciation. You arrive with your savings; they arrive with the value their property gained while you were paying rent. And that rent is exactly the money that should have been building your down payment, but it ended up in someone else’s wealth.

But this isn’t only about looking at the obstacles in the real estate market. As with everything in life, the cycle must go on: the emerging generations will have to find a way to secure a living space where they can start a family, reproduce and develop properly, based on merit, consistency and smart work.

06What to do to secure a property as soon as possible

First, accept what you can’t control. Just like the weather, which we can’t fully control, we need to be self-aware about how far our individual power carries weight.

What we can control lies within ourselves, something that is usually underestimated.

First things first. You can’t fill a bucket of water if it leaks or, worse, if there’s no flow of water. So the first thing to focus on is building the right cash flow system: where your water, that is, your money, comes from. It can come from salary, sales, commissions, fees or royalties. But your flow has to be steady; otherwise, it isn’t a flow, it’s a tide.

To each according to their means. Don’t expect to buy a property downtown if your cash flow doesn’t allow it; we have to be realistic about our ability to pay. If you want to aim higher, demand more of yourself.

Make your resources efficient. It isn’t about being stingy or a penny-pincher; it’s about moving the flow and being the one who controls it, not letting it control you. Most of the successful people I’ve known manage their accounts religiously: they know exactly what they spend, how much they earn and how much is left each month, after taxes, of course. That is your real ability to pay, not your gross income.

Plan your payments. Record every movement in your bank account and your wallet, or if you don’t have time, hire a personal accountant to do it for you. Believe me, it’s worth it.

Something I learned in my years as a real estate agent in Mexico, where the role is known as a Real Estate Broker, is that real estate isn’t a sprint; it’s a matter of time, consistency and discipline. Here, the one who prospers isn’t the one with the most motivation, but the one with the best discipline to reach their goals.

The good news for starters is that not everything is cooked. There are ways to save using Canadian government accounts, such as the FHSA and the Home Buyers’ Plan.

There are also tax exemptions. In British Columbia, if you buy your first home to live in, you can save up to $8,000 on the property transfer tax on properties up to $835,000. And if the home is newly built, the exemption can be total on properties up to $1,100,000, even if it isn’t your first home. For both, you need to be a Canadian citizen or permanent resident and live in the property. For the first-time buyer exemption, you must also have lived in British Columbia for at least a year, or filed two income tax returns as a B.C. resident in the last six years.

Co-ownership, only with a contract, and only with people who share your values, a common vision and a common business ethic. Otherwise, it can be the worst deal you ever make in real estate.

Guard your credit religiously. Credit cards, far from being a way to borrow money at exorbitant interest rates, are better used for one thing only: building relationships with your banks. A credit card is like an agreement with your partner: if you keep it, trust goes up and the relationship improves; if not, trust goes down and the relationship ends. A good relationship with your bank gives you access to better interest rates, more credit and preferential terms. Don’t underestimate the power of your credit card and your credit history.

And finally, eliminate defeatism from your life. Defeatism brings nothing good but stagnation, and just as stagnant water goes foul and stale, the same can happen to your finances, your relationships, your work and your body. The fact that current conditions make buying a property harder doesn’t mean we should give up and wait for someone or something to save us.

We want a life in motion. Remember that whatever moves has energy, and money is a form of economic energy.

Stay on the side of motion, knowledge and discipline, and you’ll see your real estate goals, and those in every other area of your life, begin to take shape.

—Closing

Housing isn’t expensive for a single reason. It’s expensive because money lost its anchor, because land exists but regulation freezes it, because the home became a second bank, and because taxes, red tape and family disputes hold back what could be for sale. None of that is controlled by any one person.

What you do control is your cash flow, your discipline and your credit. The market waits for no one, but it doesn’t close its door forever on those who arrive prepared.