Things keep getting gloomier for Millennials. The latest bad news comes from Finance Minister Bill Morneau, who said they should get used to “job churn”. This statement from the Federal government basically says get used to declining pay patterns, decreasing consumer confidence, and establishing a new normal. These trends will severely impact Canadian real estate over the next 10 – 20 years.
For those that don’t know “job churn” is the process of being repeatedly hired and fired from temporary employment. It’s my understanding it’s twice as fun as it sounds.
Millennials Work Less
Millennials are working less full-time jobs. The number of full-time jobs for people aged 24 and under dropped 8% over the past 20 years. It did better in the age bracket of 25-29, but it still dropped a percent over the same period. While it seems like it’s an extended adolescent vacation, it’s really not. This reduces the wealth building benefits of compound interest. The later Millennials begin saving, the more they’ll have to save.
For example, if you contribute equal monthly amounts when you hit 20 years of age to 65. At a 3% return, you’ll have made an extra 50% on top of your contributions. Sweet, right? But if you started 5 years later, you can reduce the total amount you’ll have by 25%. Crap. If you delay another 5 years to 30, you now have half the money you would have saved had you started 10 years prior. If Millennials can’t find full-time employment until later in life, they don’t have the option of saving early.
Millennials Are Temporary Workers
So Millennials are working later in life, making saving much harder. If that wasn’t bad enough, they’re being told they should expect more temporary work. Since 2005, permanent employment for youth has dropped 2% to 68.7%. There’s two major consequences to thinking like this – financial (again?!), and social.
Financially speaking, temporary and short-term employees make less than full-time workers. Surprisingly, I’m not even discussing benefits. Temporary workers made around 72% of their full-time counterparts in 2015. That’s more than a quarter less than their permanent friends – which is 28% less they can save. Millennials preparing for less permanent jobs, is preparing for less income.
Impact On Consumer Confidence
Frequent job churn also has big consequences for the economy. Not because of the lack of income and tax dollars during their job search, although that’s a problem. Mostly because consumer confidence will plummet.
Consumer confidence is already on the slide in Canada. The Conference Board of Canada cited a massive 6.3% drop in consumer confidence in just October. They don’t break their research down by age, only by region. Although I can’t imagine that Boomers, that recently made a buttload on real estate, are applying the downward pressure. More likely, people with precarious employment are dragging the index down. If you’re at risk of job churn, you’re more likely to delay making significant purchases, like a home.
Establishing A New Normal
Temporary drops happen. Heck, 10-20 year life cycles happen, especially in commodity driven economies like Canada. Usually members of government just put on their best suit and say everything is going to be alright. Not this time.
Morneau is telling Millennials that they’ll need to accept it. While some journalists think he’s naive to the situation, I have a hard time believing this. Bay Street’s most influential person probably understands this more than he’s letting on.
More likely, he’s establishing a new normal by giving an okay to companies that have been doing this for a long time. He’s also setting expectations for young people. They shouldn’t expect job stability or more money. They should expect to work substantially later in life, and scale back their retirement expectations.
Real Estate and Dollar Value
Real estate is much more simple than people think. The value of property increases as the value of the things located on it does. Sometimes it’s oil, sometimes it’s exclusive demand, and sometimes it’s the wealthy citizens of a booming economy. Now, if future Canadians aren’t going to be wealthier, and oil demand isn’t going to soar anytime soon… How do we drive exclusive demand?