Welcome to this month’s installment of Dear Urbaneer, where I answer questions about Toronto, Ontario, Canada real estate. This month, I am counselling parents whose adult son is struggling to save a down payment for a home.

Dear Urbaneer: 

My husband and I are considering helping our adult son with the down payment for a home. He has a good job with a good salary, but it seems impossible he will save enough for a down payment, despite his best efforts. A lot of our friends are doing similar things with their children, which include providing some pretty substantial sums. Is this happening as commonly as I think?  How much money are parents actually giving their kids? What else do we need to know? 

Signed,  

How Big Is The Bank of Mom & Dad? 

Here is my reply:

Dear Bank of Mom & Dad: 

When I penned my first post on The Bank Of Mom & Dad eleven years ago, and the sizable sums being gifted by parents to their children for a property purchase, we were seeing the beginnings of the greatest wealth transfer in Canadian history. From 2016 through 2026, $1 trillion will have been transferred from the Boomers and their Silent Generation parents to their GenX and Millennial heirs, with more underway. Accelerated in part by the increasing popularity of “giving while living” the impact of this intergenerational wealth transfer on the Canadian housing market is profound.

I find this topic fascinating. Every four years or so since 2011 it’s been a topic on Urbaneer:

 In 2013 –> Are Strings Attached When Parents Help You Buy? 

 In 2014 –> Is The Bank of Mom and Dad Behind Rising Housing Prices? 

  In 2019  –> How To Reconcile Home Ownership Dreams With Real Estate Realities: For Millennials 

  And in 2023 –> Dear Urbaneer: Who Is Buying Toronto Real Estate In 2023? 

The Bank of Mom & Dad is not a new phenomenon. In fact, isn’t it reasonable to assume parents have helped their children financially for as long as money has existed? If this is accurate, then the Bank of Mom & Dad is one of the oldest, largest and most ubiquitous cash dispensaries in the world. What is new, however, is the large number of parents who are gifting money (and loaning, whether that be forgivable or with strings attached) to their kids to bolster the down payments towards a property, and the soaring dollar value sums they’re providing.

When it comes to investing, the asset most parents have favoured for generations is the dwelling you buy to personally occupy. In their eyes, purchasing bricks and mortar not only provides a solid return on investment but offers the priceless added benefit 0f putting a roof over one’s head. It also comes with the bonus of not having to pay capital gains tax when you sell it, and the peace of mind that your target market is every human being. The Bank of Mom & Dad also like bricks and mortar because, unlike stocks or bitcoin, they know exactly where their financial contribution is located, allowing them to keep tabs on it. And should their child lack financial prudence and blow their inheritance after Mom & Dad have passed, at least they won’t be homeless. Yes, this is how parents think.

The Bank of Mom & Dad also like funding a home because it pairs nicely with domesticity and marriage, which parents also favour (did somebody say Grandkids?). In the postwar Golden Age when a single income supported a nuclear family living in the suburbs, the middle class standard of living was comfortable, modest and unassuming. This allowed everyone to get onto the property ladder and live modestly too. During this period, the Bank of Mom & Dad acted out of generosity rather than necessity, which meant it wasn’t even a consideration to gift a substantial sum for a first purchase. Instead, parents chipped in funds to cover incidentals like legal fees, moving costs, or new appliances. Later, in the 70s, 80s and 90s, when self-sufficient women rejected or delayed marriage and postponed child-bearing the progressive Banks of Mom & Dad adapted. Wedding or not, many helped their single daughters get onto the property ladder to secure her financial future without a man. It wasn’t until the 2010s when real estate prices started to escalate more aggressively that the Bank of Mom & Dad started acting out of necessity. This is when parents started writing big cheques to increase the downpayment to 20% of the property purchase price so their child could secure a conventional mortgage. Because nothing gets the ire of parents more than unnecessary fees, such as the insurance premiums charged to high ratio Buyers by CMHC.

The Disparity Between Incomes & Property Prices

Today, in 2024, while prices have moderated somewhat, the cost of living (in particular rent), and the cost of borrowing are still stubbornly high in relation to incomes, especially in Canada’s metropolitan centres. Of course it’s a lot more palatable if you secured a property when prices were more reasonable in relation to income and you’re well-positioned on the property ladder with equity under your belt, but if you’re trying to get on that bottom rung it’s really, really, hard. 

*Source: From The Measure Of A Plan – April 27, 2024 (with thanks)

* Source: Growth In Real Home Prices, Real Disposable Incomes & Population In Canada (Q1 1975 to Q3 2022) – Corpay

According to Point2Homes, “more than 60% of renters in Canada hope to buy a home within a year, but in cities like Toronto, building up the funds for even a starter home can take decades”.

Their latest generational study on saving for a down payment reveals the disparity between renters’ expectations clash and market realities. Here is some of the takeaways from their findings, with thanks:

“Expectations vs. Reality:

• 66% of renters expect to need less than $50,000 for a down payment, with 42% believing they’ll need under $25,000.
• Gen Z and older Baby Boomers are the most eager to become homeowners, despite having the lowest incomes.
• Nearly half of all survey respondents have less than $10,000 set aside for a down payment, and 14% of Gen Z, older Millennials, and young Baby Boomers have no savings at all.

In Toronto:

• The city’s youngest renters would need to set aside 20% of their income for nearly 30 years, as the down payment for a starter home exceeds $100,000.
• Gen X and Older Millennials are in a slightly better position, potentially saving enough in under 10 years.
• Young Millennials as well as Young Baby Boomers would need just over 11 years of saving, while Older Baby Boomers are looking at close to 16 years to afford a down payment.
• It’s even tougher for Gen Z renters in the neighboring cities of Markham and Vaughan, where down payments range from $133,000 to $135,000, and savings timelines can stretch up to 40 years”.

For more detailed insights, including the survey results, check out –> their comprehensive study 

It’s gotten to the point that funds from the Bank of Mom and Dad is a necessity for today’s first-time homebuyers. Although a financial gift is generous, when its purpose is specifically directed to an asset in great demand and short supply it has tremendous ramifications. It drives up housing prices, pushes greater numbers of households to more affordable outlying locations, and increases the wealth gap between the haves, and the have nots.

The Plight Of Today’s First-Time Homebuyer (And Why The Bank Of Mom & Dad Is Prominent) 

From a homeownership perspective, generationally speaking, you really have to feel for Millennials and Gen Z – and Gen Alpha not too far behind. So many are saddled with sky-high student debt, sky-high market rent, plus the sky-high cost of everything makes saving up the down payment beyond challenging. Despite this, these hopeful Buyers soldier on. 

The most recent census by Stats Can found the Canadian real estate market is harsh for hopeful homeowners per this Financial Post article “Posthaste: Canadian Dream Of Owning A Home Is Fading For A Whole Generation“. It pits the desire for Gen Z and Millennial hopeful homeowners against the reality of what is happening, and shows that homeownership is on the decline amongst these demographics. 

Having your own well-built house to be safe and secure has been socially entrenched for generations. In fact, it’s one of the first messages delivered to children learning to read The Three Little Pigs – a fable first printed in England in the 1840s but thought to be much older. The story begins with the little pigs’ mother sending them out to “seek their fortune”. The first little pig builds a house out of straw, but a wolf blows it down leaving him homeless. The second little pig builds a house out of sticks, but the result is the same. The third little pig builds a house out of bricks, which the wolf fails to destroy. The infuriated wolf comes down the chimney into a fire, where he burns his tail and runs away. The moral of the story is that those who don’t build properly to prepare for their future will be destroyed by the vicissitudes of life, while those who plan ahead and build on a solid foundation of good materials can face such hazards. Oh, and avoid being homeless.

In 2018 I wrote a rant post called Why Does Homeownership Remain A Priority For Canadians, Despite The High Costs? where I suggested the dream of homeownership burns bright primarily because all layers of government are invested in our drinking the shelter kool-aid. Millions of dollars is spent annually by the Canadian government brainwashing us to buy property. Why? Because home ownership shackles us to a lifetime of debt serfdom, renders us tired and complacent, and keeps us hyper-focused on making money. Meanwhile, the purchase of a property in Toronto comes with a provincial and municipal tax bill on closing, our mortgage interest payments feed the money merchants of the capitalist machine, our names registered on Land Titles keeps us bound by municipal zoning, compliant to provincial building code and annually shelter taxed, while climbing the property ladder to meet our personal needs keeps the country’s asset-based economy firing on all cylinders. To fund Municipal, Provincial and Federal coffers alike, the government needs us to stay on the shelter wheel.

So it should come as no surprise that by adulthood, calling oneself a ‘homeowner’ has so much more meaning than just owning shelter. For many Canadians buying your own home is considered a birthright, and for newcomers, it’s part of achieving the ‘Canadian Dream’. It also represents a path to financial security, is a means to display status, as well as reflecting one is “biographically on schedule”.

I applied Maslow’s hierarchy of needs to real estate as I understand it. Abraham Maslow was an American psychologist who created a theory of psychological health predicated on fulfilling innate human needs in priority, culminating in self-actualization. Consider checking these out in Maslow’s Hierarchy Of Needs And Toronto Real Estate For Sellers – and – For Buyers.

Is it All Degrees Of Losing If There Is No Bank Of Mom & Dad?

From March 2022 to July 2023 interest rates were increased by 4.75% to cool runaway inflation, which was driven in part by high housing costs. Although prices have moderated somewhat – which I attribute in part to the flight of speculators, the end of FOMO, and the decline in bidding wars – might it be the Buyers with help from the Bank of Mom & Dad who are sustaining Toronto real estate values?

Although the Bank of Canada has reduced interest rates 3 times by a quarter point each (as of September 30th, 2024) – this has not been substantial enough to bring Buyers off the sidelines and effect any significant momentum in the market – the disparity between housing prices in relation to incomes remains substantial. If this is the case, then the people buying must have substantial down payments.

As this Financial Post article’s headline aptly describes  “Why Saving For A Downpayment Is Next To Impossible In Canada’s Major Markets” it will take well over a decade to save the required amount for a downpayment in Toronto’s pricey housing market, and that’s assuming the prospective purchaser makes at least $100,000 a year, is saving 10 percent a year at a reasonable rate of return, and the rate of price growth doesn’t substantially outpace the savings returns and erode that precious downpayment even further. 

And according to this recent affordability study from RateHub.ca the minimum annual income required to buy a home in Toronto is $215, 290. 

For the average dwell hunter, without receiving an injection of wealth from the Bank of Mom and Dad, purchasing a slice of Toronto real estate is untenable. 

How Much Money Is Flowing From The Bank Of Mom & Dad? 

Regarding your question about how many kids are withdrawing money from the Bank of Mom & Dad,  and how much are they typically getting, according to the survey referenced in this article, “This Is How Many First-Time Home Buyers Got Help From Family To Cover Their Down Payment” over a third of home buyers received a financial gift for their downpayment from their family and a further 25 percent of respondents get help from family to afford their mortgage payments.  

According to this report from CIBC, “Gifting For Down Payments — An *Update” the share of first-time homebuyers that have relied on help from the Bank of Mom & Dad has risen to 31 percent nationally, up from 20 percent in 2015.  Of those climbing the property ladder, 12% have received financial help from the Bank of Mom & Dad.  As a realtor operating in the central core of the original City of Toronto, about two-thirds of my first-time Buyers receive help from the Bank of Mom & Dad.

The average gift amount has risen by 73 percent since 2019, and nationally sits at $115,000. In Ontario, the average amount gifted is $128,000, and in British Columbia it’s $204,000. 

What is also fascinating is that, despite prices moderating over the last few years, the dollar sum of gift amounts have actually increased. This suggests that a property purchase may be the catalyst for a wealth transfer but the amount of the financial gift itself is not directly tied to the transaction. 

This Financial Post article, “Posthaste: In British Columbia, Parents Are Forking Out $204,000 On Average So Their Kids Can Buy A Home” has background information on the CIBC and RateHub studies. 

The take away? A significant amount of assets will be transferred to the next generation within 10 years, but it won’t slow down to a trickle until 2050. Furthermore, the wealth is increasing which means the financial gift sums will get larger as parents transfer generational wealth. 

*Source: Fraser Institute (2016)

Growing Levels Of Wealth 

The Baby Boomer and older GenX  Canadians most likely to be the Bank of Mom & Dad have seen significant increases in their net worth over recent years, fueled in part by the surge in real estate values.

According to the latest data from Stats Can, referenced in this Financial Post article “Canadian Households Are Worth More Than $1 Million On Average: How Do You Stack Up?” the 55 to 64 year old age group was the wealthiest with an average household net worth of $1,592,996, followed by the 45 to 54 year old age group at $1,342,851, and the  65+ year old crowd at $1,121,020. 

This MacLean’s article “The Jackpot Generation” is a a great read, and particularly informative on how resistant Canadians are talking about death, taxes and inheritance. It also touches on the internal conflict most individuals receiving a financial gift from the Bank of Mom & Dad must process and reconcile. If you believe the ability to achieve success in Canada is a function of meritocracy, how does the intergenerational privilege of inheriting riches without hard work, education, or ambition sit with you? Because the largesse of transference by the familial institution called the Bank of Mom & Dad has become increasingly important – and detrimental – t0 the Canadian property market. 

While this transfer of wealth accomplishes a lot of things, like financial security for a select group, it contributes to inequality amongst classes, which were seen very prominently in the 19th century. Back then, one’s whole life could be determined by what they would (or what they would not) inherit, rather than today’s connection between opportunity, hard work and time. 

The concern among critics is that, with the sheer number of families now adopting this mindset of generational wealth transfer, particularly as a means of getting into the housing market, is widening the chasm between the haves and have-nots, which is already happening in the high-price house market. It threatens the middle class in real-time. 

This Vancouver Sun article “Douglas Todd: Canada’s ‘Bank Of Mom & Dad’ Returning Us To 19th-Century Inheritance Culture” discusses these impacts, as does “Canadian Housing Resembles A Return To Victorian-Era Inheritance Culture: Stat Can“

How Does The Bank Of Mom & Dad Impact Affordability? 

In real estate, values are driven by supply and demand. Additionally, if people have the capacity to pay high prices (either with deep pockets, cheap borrowing, or both), and are willing to pay them, theoretically they stay elevated. And this will persist even with government interventions to pull the market back, such as stress tests and interest rate increases. 

With the uber-deep pockets of the Bank of Mom & Dad, some privileged Buyers can upsize beyond what would logically be their first rung on the property ladder, which can impact affordability on a few fronts:  

It impacts the natural filtering of stock up and down the property ladder, which impacts supply, which impacts prices.  

It allows these buyers to pay top dollar, which keeps prices elevated beyond the reach of those without access to generational wealth. 

This Financial Post article “The Downside Of Financings From The Bank Of Mom & Dad” looks at a Bank of Canada analysis that found that the average first-timer who used funds from the Bank of Mom & Dad would have had to purchase a home at a price that was 37 percent lower in order to qualify for a mortgage, if they were doing it on their own. 

**A brief segue for a moment, if I may. Do you know who is competing with the Bank of Mom & Dad? It’s the Canadian newlyweds from ethnicities where it’s customary to gift the couple money. Years ago my brilliant assistant Christine – who is first generation Canadian Portuguese – got married to her high school sweetheart Joe – also first generation Canadian Portuguese – and once they were married (at the age of 25) they promptly bought a house for cash. In their community, every time a son or daughter got married, each family would give the newlyweds a handsome cheque with the understanding that when their son or daughter got married, the sum would be reciprocated in kind. This clever support network ensured every child in that social community were gifted sufficient funds to buy a house mortgage-free. This reciprocal arrangement appears in many different cultural groups, including Asian, Indian, Italian and Jewish. It made me wonder what the heck Wasp’s are doing giving each other toasters!**

Risks Associated With The Bank of Mom & Dad 

For those parents (or grandparents) thinking about lending or gifting money to children for the purposes of buying a home should consider a few things first: 

• Can you afford it?

Is gifting money going to make you financially vulnerable- i.e. are you going to deplete a lot of your savings, or might this create an additional expense for you? 

• Does this align with your own financial goals?

Will gifting or loaning money interfere with your own retirement or other financial plans? How long do you intend to keep working and generating income, to accumulate more savings, if need be? 

• Will this affect your relationship?

Things can become tricky when money gets involved, even with parents and children. Have a conversation around expectations and feelings, to keep communication open. Will this affect any power dynamics? 

• Is the money a gift or a loan?

If the money is to be gifted, you will need to fill in documentation indicating that you don’t require repayment. If it is a loan, you need to work out the terms and duration of the loan. It’s a good idea to get all of this in writing, and have all parties agree and sign it, much as you would with a regular bank. This is the Bank of Mom and Dad after all. Also be aware that loan payments could be seen as income, so you could potentially be taxed. 

This articles are must reads if the topic of the Bank of Mom & Dad is orbiting your consciousness 6 Things To Consider Before Borrowing From The Bank Of Mom & Dad For Your First Home + A Few Points To Consider Before Agreeing To Open Up The Bank Of Mom & Dad + What Happens When The Bank Of Mom & Dad Is Too Generous? 

Are Strings Attached?

News flash! Canadians only discuss their financial affairs with people in the finance professions. Even though we’re taught – or socially conditioned – at a young age to engage in the individual pursuit of as much wealth during our lifetime as possible, the topic of money ironically remains taboo. This perpetuates financial illiteracy and, when lacking a solid foundation, can foster feelings of power and control as part of the exchange value of money. Even family dynamics are not immune from these possibilities.

Years ago I was guiding a Bank of Mom & Dad who were looking for a loft to purchase and gift to their son, who was in his early 20s. Throughout the process I found them very warm and engaging, and I thought the son was a model child. One day I showed them a place that the parents loved while the son was clearly repelled by it. They looked at him and asked “What don’t you like?” And with indignation he spat back at them “Formica countertops? You expect me to live with formica countertops?”. The mother paused, before replying in a cool clipped trill “Mark my words. May I remind you that I still open a burnt orange refrigerator from the 70s every day so you can live in a glass loft perched in this glittering city centre?” I looked at him, shrugged my shoulders and said “Don’t bite the hand that feeds you, bud”. And then we all laughed.

If the Bank of Mom & Dad are willing to help finance the purchase of Junior’s bachelor pad, it’s never too late to set right the adult child’s precocious belief they are entitled to a place befitting their parents’ status when they have done nothing to earn it. On the flip side, I have never seen a mother from the Bank of Mom & Dad not picture herself living in a specific room in each of the houses they’re viewing to purchase for their daughter. I always have to pull the daughter aside and make it very clear that she understands that if she allows her parents to help with the purchase, if her father dies prematurely she will be obliged to warmly invite her mother to move in with her and her kids. Mark my words, every deposit by the Bank of Mom & Dad comes with strings attached. And that is the unspoken right to age in place in their child’s home. More often than not, the adult child knows this is part of the exchange value.

Which brings me to one additional thought. Consider sitting down with the entire family and discussing whether it makes sense for them to collectively build a multi-generational home. Because if you each create your own independent suites – or built multiple structures that appear attached but are self-contained, the end result might be a happier more livable space. Just thinking thinking!

Thank you for your question!

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