Urban home
A recent Home Cents blog by my colleague Claire Neary has sparked a vigorous (and necessary) debate on the benefits of renting vs. owning a home.
Claire has obviously touched upon something that Globe readers are passionate about, as the hundreds of comments attest to.
And she makes some excellent arguments for renting. At this point in her life, buying a home makes no financial sense. She's wisely resisting peer pressure from friends, family, and especially, the banks.
Her story may be a glimpse into the new normal. Claire's generation is part of a cultural shift away from the traditional "Canadian dream" of a white picket fence and a large yard in a leafy neighbourhood. A growing number of people are choosing to live downtown. Fewer people are buying cars, opting instead to live within walking, biking or transit distance of work.
In addition, and possibly as a result of, the cost of real estate in major cities is becoming prohibitively dear. The price to income ratio - the ratio of median house prices to median familial disposable incomes - in Toronto is now around 7, while in Vancouver it just reached a stratospheric 11. No wonder people like Claire and Don are embracing the renter's life.
Claire's main argument is that renting allows her to save for a larger down payment. As a bonus, she gets to live in a neighbourhood she could not otherwise afford. For a young couple, these are powerful arguments in support of her current lifestyle.
However, as a late thirty-something who is approaching his second anniversary of homeownership, I can definitely say that buying has at least three upsides.
1.) Buying feels good
To start, it's a great feeling to walk into "your place" for the first time. You've saved up. You've done your research. You've made your decision and signed on the dotted line. It's a significant milestone and it deserves to be celebrated.
Commenters on Claire's story point out that the status afforded to homeownership has become an unhealthy fixation that creates a social barrier between owners and renters. For example: "Tell someone you just bought a house, you get high fives, congratulations and all that … tell someone you are renting, you get the frowns and obligatory questions as to when you are buying a house."
There's definitely some truth to this. I'm sure there are those who feel compelled to enter the market earlier than they should due to social pressure.
However, if your primary reason for buying is keeping up with the Joneses, you should probably take a step back and reexamine your situation. In my case, buying a home had little to do with outside influences. I wanted to live in a particular neighbourhood and I waited until the right place – at the right price – came along. My down payment was more than the minimum 5 per cent, but not by much, so the payment options aren't ideal. However, I love the location and the debt load is sustainable, so I don't worry about it.
2.) Meet the neighbours
The second benefit to owning is one I didn't see coming. Buying a home changed how I view my neighbourhood. I'm far more invested in my community now compared to when I was renting. I attend neighbourhood meetings. I speak to my councillor about issues that affect me. I recently found myself confronting someone who was littering outside my place.
Basically, I now take pride in my neighbourhood and want to see it prosper. Intangible, sure. But this is the stuff is that drives successful communities.
3.) A harsh dose of reality
The last - and most important - benefit is what can best be described as the financial awakening that buying a home brings about. You don't truly understand the word "budget" until you've got a mortgage.
In my case, the first few months of mortgage payments brought reality to bear like waking up in a cold shower with a hangover. Suddenly, life was expensive. And the only areas where cuts were possible were the fun things like restaurants, weekend getaways and vacations.
As it dawned on me how restricted my budget had become, doubt slowly crept in. Had I had made the right decision? Was the cost of this home worth a drastic change in lifestyle?
But very quickly, my financial perspective has shifted from a monthly outlook to something more long term. I ran the numbers on my spending for frivolities like booze, eating out and impulsive shopping, and realized how much these things were truly costing me. I rebuilt my budget from the ground up, with a focus on paying off my mortgage as quickly as possible.
My view of the world is now a sort of financial Realpolitik. Debt is the enemy. When I see something I want, I save up for it. If I really want it and it doesn't fit into my budget, I ask myself: Is it worth lowering my mortgage payments for a couple of months? If not, I go without.
It's possible these lessons could have occurred without taking on a mortgage. Maybe it's something that comes with age. All I know is that the change from laissez-faire to laser-focus budgeting styles is a direct result of buying my home. And I'm a happier person for it.