Yo, Canada: It’s time we had a chat about your bad attitude toward renting instead of owning a home.
Home ownership in early 2021 is the mythical licence to print money come to life. But with house prices soaring and affordability retreating, more people are going to be forced to rent. We need to build up renting as a respectable, pragmatic life choice and stop acting like it’s a social disease.
You know I’m right about the negativity toward renting. Tick any of these boxes that apply: Renters miss out on sure-fire wealth creation involving an asset that can be sold tax-free if it’s a principal residence. Paying a mortgage is a forced savings plan because you build equity. Renters are just throwing their money away. Renters lose, owners win.
Renting is seen as a state of suspended adulthood – something you do for a limited time after graduation. Get a job, save a down payment, buy a house. Bing, you’re well on your way to a life well-lived.
Let’s not forget the lifestyle benefit of owning. Space to spread out, both now and after the pandemic. Barbecues on the deck, kids playing hockey in your driveway. Your own swimming pool and an island in your kitchen.
We can all agree that home ownership is great in many ways. But let’s also recognize that it’s getting increasingly unaffordable for young buyers. Resale house prices jumped 22.8 per cent on a year-over-year basis nationally in January to $621,525. Meanwhile, interest costs on fixed-rate mortgages have recently come back a bit from their pandemic lows.
The average resale price in both Toronto and Vancouver was more than $1-million as of last month, a level at which buyers have to come up with a minimum down payment of 20 per cent. That’s $200,000, which is quite a load in a world where getting 1.5 per cent on a savings account is a win.
Prices in some other cities are high enough that monthly mortgage payments could easily be in the $2,500 to $3,000 a month range, depending on mortgage rate and down payment. Add daycare plus car payments and you’re up against it.
Canada, you’re totally right that with home prices rising, the optics of renting as a housing choice have never looked worse. But from a personal finance point of view, renting makes sense for young adults trying to navigate the coming transition into a postpandemic world.
Renting gives you the flexibility to get situated in the postpandemic work environment without a house to hold you down. Change cities if you need to, or relocate downtown if your employer is done with remote work and wants an office with butts in seats. Renting also offers a level of personal freedom that could be very appealing when travel is once again something we can enjoy without guilt or hassle.
Unlike buyers, renters benefit from favourable pandemic economics. TorontoRentals.com says the average rent for all types of properties was down by 17 per cent in January on a year-over-year basis to $1,993. Rental costs in the city have been falling for 14 straight months.
Rentals.ca reports that average monthly rent of properties listed on its website from across the country was down 8.7 per cent in January on a year-over-year basis to $1,714. Vancouver one-bedrooms edged up 1 per cent on average, but two-bed rentals fell 7.4 per cent. Other cities with rent declines included Ottawa and several Alberta locations.
Economical rent does seem pretty lame compared with soaring equity. But all is not lost for renters. They save hundreds of dollars a month compared with home owners by not paying for upkeep or improvements. If most or all of that money is invested over a few decades, it produces a big, fat investment portfolio that can be used for retirement and other things.
Canada, I totally get your obsession with houses right now. Housing answers a spiritual hunger in our population that has been heightened by the pandemic. And affordability does seem to be slipping way. If you don’t act now, you might be shut out forever.
But here’s the thing – some people are already being shut out. They’ll be renting for the foreseeable future and they need your support, not your prejudice against a choice made by necessity.
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Rob Carrick