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There’s a rule of personal finance that says average earners are spending foolishly by paying the average rent in their city.

According to this rule, monthly rental costs should account for no more than 30 per cent of gross pay. In Vancouver, the average rent and average income level leave us with a rent-to-income ratio of 53 per cent. In Toronto, the ratio is 48 per cent. In Halifax, 40 per cent.

Rents are one of the big stories of the increasing unaffordability of living your life in 2022. Can we pause our obsessing about the affordability of houses and condos long enough to engage with this more disturbing problem?

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Unaffordable rent financially paralyzes people by limiting their upward mobility and resilience. Between rent and the rising cost of everyday purchases including food and fuel, there’s not much left to save for near-term purposes such as an emergency fund or long-term goals such as retirement.

Add house down payments to the list of unattainable goals for people bogged down with expensive rents. Without parental subsidies, it could take decades to save a down payment if close to half your pay covers rent. Eventually, we could face a shortage of young adults ready and able to buy houses.

The solutions to high rents are to get a roommate, rent in the boonies or move back in with your parents. But you ideally want to take a step forward as a young adult entering the work force, not revert to your younger life.

To assess the affordability of renting, I looked at the Vancouver, Calgary, Toronto, Montreal and Halifax markets using data for one-bedroom units on Rentals.ca and 2020 Statistics Canada income numbers for adults. The income data was updated to 2022 levels by assuming a total 7-per-cent increase.

As with houses, Calgary is an affordability oasis for renters. Based on the average July rent of $1,583 and an estimated average income of $62,595, the rent-to-income ratio comes in at a tidy 30 per cent. Montreal’s rent-to-income ratio was 35 per cent, a win in today’s market.

And then things fall apart. Vancouver has an average one-bedroom rental cost of $2,500 and an estimated average income of $56,282. That’s where the out of sight, rent-to-income ratio of 53 per cent comes from. (To calculate the rent-to-income ratio, multiply monthly rent by 1200 and divide by annual income.)

Toronto was slightly less unaffordable thanks to modestly lower average rents. Halifax’s average rent was a reasonable $1,648, but the average income for the Atlantic provinces (specific Halifax numbers were not broken out) was the lowest in the group at $49,220.

Mathematically, a solution to the rental affordability problem is to get a two-bedroom unit with a roommate or partner. Rentals.ca says the average Toronto two-bed rent was $3,259 in July – apply two average salaries for the city to that cost and you get a rent-to-income ratio for each roommate of 35 per cent. Again, that’s win in today’s rental market.

Moving farther afield might also help with affordability. The average one-bedroom rent in Hamilton, just west of Toronto, is 25 per cent cheaper at $1,694.

A fascinating development in housing this year is the duel between owning and renting for the title of most financially toxic. Rising mortgage rates increase the payments of homeowners either immediately in the case of some variable-rate mortgages, or eventually in the case of fixed-rate and other variable-rate mortgages.

Meantime, the pandemic chill in rents has all but ended. Rentals.ca calculates a cross-Canada average 10.7-per-cent increase in one-bedroom rents in July compared with the previous year. The average increase was 14.4 per cent in Vancouver, 21.6 per cent in Toronto, 27 per cent in Calgary, 8.9 per cent in Montreal and 4.6 per cent in Halifax.

The 30-per-cent rule needs some tweaking in this environment. Let’s bump the maximum to 35 per cent, call it an ideal goal and acknowledge that many people will be at a much higher number than that through no fault of their own. The only way out of this box may be through co-habiting.


Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.