Canada's Aging Population: What Investors Should Know for the 2020s

In this mini-series, we're taking a look at four macro-economic trends Canada is facing in the decade ahead, and how the nation can successfully navigate them to thrive. In this edition: the aging population.

The following is an excerpt from RBC Economics' recently released report, Navigating the 2020s.

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The Challenge

The loudest sound of the 2020s may be the ticking of the demographic time bomb. Canadians are living longer and having fewer babies. Add the advancing age of the baby boom cohort, and Canada is set to join a growing club of super-aged societies. By the end of the decade, close to one in four Canadians will be seniors, up from 17% now.

Aging is likely to transform our society in significant ways—from increasing demands on our healthcare system and changing the types of housing we build, to boosting demand for group leisure travel and seniors-friendly sports. We may not be able to predict all of the consequences at this stage. But one thing's for sure: working-age Canadians will feel the financial squeeze. There will be fewer of them to shoulder the additional costs of our aging society. In 2010, there were 2.3 working-aged Canadians for every youth and senior. By 2030 we expect that number to fall to 1.7. The slowing growth of the labour force (which will actually cause the participation rate to fall from 65% today to 62% by 2030) will be a problem for governments, who will have to shoulder an increased burden.

While Canada's strong rate of immigration will help offset those pressures, supporting and caring for a larger number of older Canadians will be a primary theme of the 2020s.

Costs of care could crowd out other spending initiatives

The financial demands of an older population will make it harder for governments to fund key growth priorities like education and skills development, let alone the vote-getting niche initiatives they often advance at election time. All levels of government will feel pressure from a shrinking tax base. Caring for seniors will consume 55% of provincial and territorial healthcare budgets in 2030 versus 45% now. Demand for long-term care beds alone could cost the provinces $50 billion in construction costs by 2035.

Ottawa, meanwhile, will face pressure to boost its transfers to the provinces to help them prepare for the realities of the 2020s. At $76 billion, and growing 3.6% a year, transfers to the provinces currently consume more than 20% of Ottawa's budget. Public debt charges will add to the strain.

A national challenge: Finding homes for aging Canadians

In 2020, 45% of baby boomers will be 65 and over, with the others joining their ranks over the decade. By age 80, one in 10 will be living in a seniors' residence or nursing home, a number that will jump to one in four by the time they're 85.

There will be about 650,000 people living in Canadian seniors' residences or nursing homes in 2030, up from 450,000 now. Public and private resources needed to build the extra capacity will cost at least $140 billion.

The Opportunity

Building for the future

One of the defining characteristics of the last decade was worsening housing affordability, both for homeowners and renters. This is likely to persist in the 2020s, especially in Canada's largest cities, as strong immigration levels drive demand for housing. The steep cost of housing will make more of us renters—up to 1 million more, by our count. It will also fuel the growth of smaller housing markets beyond the more expensive cities, where younger Canadians have a better shot at buying their first home. The overall home ownership rate in the country is likely to fall from almost 68% in 2016 to 64% by 2030.

Canada's aging population will offer an opportunity to address some of the country's housing challenges. Over the coming decade, we expect baby boomers to 'release' half a million homes they currently own—the result of the natural shrinking of their ranks, and their shift to rental forms of housing, such as seniors' homes, for health or lifestyle reasons. Downsizing boomers will put even more units on the market.

The homes baby boomers put up for sale—often units well suited for families bought decades earlier near urban cores—will be long-awaited supply for new generations of buyers. If the price of these properties will be hard for first-time homebuyers to swallow (baby boomers won't sell cheap), the turnover will bring opportunities for others to add to, and transform, the housing supply. For example, multiple units could be built on a lot previously occupied by one dwelling. Just the kind of gentle increase in density that many see as a key part of the housing affordability solution in Canada's largest cities.

To maximize this transition, though, more progress will be needed to modernize zoning bylaws and other restrictive housing supply policies—complex and emotionally-charged issues to say the least. More than anything, this modernization will be critical in the decade ahead for new generations of Canadians to realize the same housing dreams as their baby boomer elders did decades ago.

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