Canada is currently experiencing a significant shift in wealth as baby boomers age and transfer their assets to younger generations, primarily Millennials and Generation X. Experts predict that this transfer will have profound effects on the Canadian economy, particularly the real estate market. This article explores the key aspects of this wealth transfer and its implications for homebuyers and sellers in today's market.

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The Scale of the Wealth Transfer

The numbers are staggering. A 2023 report by Chartered Professional Accountants of Canada estimated that a massive $1 trillion is expected to change hands between Canadian baby boomers and their children between 2023 and 2026. A significant portion of this wealth is tied to real estate. Many baby boomers have benefited from decades of rising property values, making their homes substantial assets to pass on.

Keith Willoughby from the Edwards School of Business at the University of Saskatchewan aptly describes this as a "trillion-dollar tsunami" poised to impact the nation. This phenomenon is particularly evident in major urban centers like Toronto and Vancouver, where property values have seen the most dramatic increases. However, this trend is also noticeable in provinces like Saskatchewan, indicating a widespread national impact.

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Impact on the Housing Market

One of the most direct impacts of this wealth transfer is on the housing market. As younger generations receive inheritances or gifts, a portion of these funds is being channeled back into real estate. This can take the form of direct down payments on homes or using gifted funds to purchase property outright.

This influx of capital into the housing market occurs at a time when Canada is already facing a housing shortage. With limited housing supply, increased demand driven by wealth transfer is likely to exert upward pressure on home prices. Economist Willoughby points out that if the supply of homes doesn't increase to meet this new demand, the natural outcome will be a rise in equilibrium prices across the housing market, including single-family homes, condos, and recreational properties.

Data from CIBC highlights this trend. In 2024, 31 percent of first-time homebuyers in Canada received financial assistance from family members to purchase a home, a significant increase from 20 percent in 2015. This demonstrates the growing reliance on family wealth for entering the housing market. Furthermore, the average value of these financial gifts has surged, jumping from $66,000 in 2019 to $115,000 in 2024. This substantial increase in both the prevalence and size of gifts underscores the significant role that wealth transfer plays in facilitating homeownership for younger Canadians.

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Exacerbating Wealth Inequality

While wealth transfer can help some younger Canadians enter the housing market, it also has the potential to widen existing wealth gaps. A 2023 Statistics Canada study revealed that for people born in the 1990s, those whose parents were homeowners were twice as likely to become homeowners themselves compared to those whose parents did not own property. This highlights how intergenerational wealth transfer can perpetuate and even amplify existing inequalities.

This situation can create societal imbalances, as described by writer Katrina Onstad's concept of "status fog." This refers to a growing disconnect between perceived income and lifestyle, where inherited wealth can obscure a person's true financial standing and distort our understanding of what constitutes a middle-class lifestyle. Essentially, some individuals achieve homeownership and a certain lifestyle not solely through their own earnings but through inherited wealth, creating an uneven playing field.

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Regional Considerations: Saskatchewan Farmland

In Saskatchewan, the wealth transfer phenomenon is particularly intertwined with agricultural land values. Farmland values in the province have nearly doubled since 2016, according to Statistics Canada. This surge in land value has placed family farms at the center of wealth transfer discussions within farming communities.

Donovan Tofin, a wealth management advisor specializing in agriculture in Saskatoon, notes that the average farm value in Saskatchewan is now likely over $3 million. This significant asset creates complex decisions for farm families as they consider succession planning. The conversation has shifted from previous generations, where the focus was on which child would take on the challenges of farming, to today's reality, where children are aware of the substantial wealth tied to the family farm and its future.

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Unequal Access to Wealth Transfer

It's crucial to acknowledge that not all young Canadians will benefit equally from this wealth transfer. Newcomers who arrived in Canada more recently and did not participate in the earlier growth of the housing market, as well as Indigenous people who faced historical and systemic barriers to property ownership, have less wealth to pass down.

Jason Bird, a business professor at First Nations University of Canada, points out that many Indigenous communities lack a "boomer generation" in the same way as the broader Canadian population due to historical factors and exclusion from the wider economy. This historical disadvantage means there is less accumulated wealth to transfer, further exacerbating existing economic disparities. Bird also highlights that wealth is often viewed differently in Indigenous communities, with an emphasis on sharing and communal well-being rather than individual accumulation.

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Potential for Charitable Giving

As inheritances grow, there is an increasing trend among recipients to consider charitable donations. Donna Ziegler, Executive Director of the South Saskatchewan Community Foundation, observes that intergenerational wealth transfer presents an opportunity to keep wealth "alive" by directing it toward community benefit. Her organization helps individuals and businesses establish funds that support charities in perpetuity, often leveraging agricultural wealth in Saskatchewan.

Individuals like Jess Klaassen-Wright, a medical student who inherited a significant sum, are also exploring ways to redistribute their wealth. Groups like Resource Movement are emerging to educate individuals on effective wealth redistribution strategies. This reflects a growing awareness among some inheritors of the societal implications of wealth transfer and a desire to use their inherited wealth for positive social impact.

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The Inheritance Tax Question

Canada remains unique among G7 nations in not having an inheritance tax since 1972. While current redistribution efforts are voluntary, some experts like Willoughby suggest that Canada could benefit from examining the potential advantages of an inheritance tax, as implemented in other developed countries. However, he acknowledges that a significant shift in perspective would be needed within the Canada Revenue Agency and the government to move away from solely taxing income and consider wealth taxation.

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Conclusion

The trillion-dollar wealth transfer underway in Canada is a significant economic and social phenomenon with far-reaching implications for the real estate market. While it can provide opportunities for some younger Canadians to enter the housing market, it also has the potential to exacerbate wealth inequality and create new challenges for housing affordability. Understanding these dynamics is crucial for both homebuyers and sellers navigating the Canadian real estate landscape in the coming years.

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Source: This is Saskatchewan