Nobody loves a renter.
We bomb home buyers and owners with helpful advice and tools, but ignore renters. Partly, it's a money thing. Huge chunks of the economy – lenders, lawyers, retailers and real estate agents – make big bucks from home sales, not renting. In a country with a near 70-per-cent home ownership rate, there's also a snobbery aspect to the treatment of renters. In the eyes of many people, to rent is to be in a state of arrested financial development.
For practical reasons, it's now time to respect the renter. Polls consistently show that young adults want to own homes, but high prices and a tough job market for millennials make it hard to earn enough to buy. At least for the short term, many millennials will rent for perfectly sound reasons.
To help them make smart financial decisions, my colleague Tom Cardoso and I created the Where Can You Afford to Rent Calculator. It's designed for people making up to $60,000 or so per year. You tell us exactly how much you make and what province(s) you want to live in, and we'll show you the cities where you can afford to rent. There are many online tools available to help home buyers see how much house they can afford – this one's for renters.
The rough rule is that rent should account for no more than 30 per cent of gross pay. Our calculator was set up to find cities that come closest to that threshold based on your income. It's just as crucial for renters to rein in the cost of shelter as it is for home owners. Short-term renters need to keep costs low so they can save a big chunk of each paycheque for a home down payment. Long-term renters need money to invest regularly if they want to end up with a similar level of wealth to owners who have paid off their mortgage.
But as with the housing market in many cities, rents are rising. Canada Mortgage and Housing Corp.'s latest rental survey showed the average rent for one- and two-bedroom apartments was about 2 per cent higher in April than a year earlier. In a hot real estate market, rents may rise even more.
The condo market analysis firm Urbanation reported in July that the monthly cost of all sizes of rented condo units in the greater Toronto area was 4.6 per cent higher than a year ago. In Vancouver, a recent report by the firm HQ Commercial said rent increases of between 10 and 20 per cent are becoming common when a unit becomes available. It's not just home buyers in some cities who are facing the sting of higher prices. Renters are, too.
The calculator's main job is to show what cities are affordable for you. You may choose to live somewhere where rent is less affordable, but at least you'll know what's happening in other cities. You'll also get an idea of the compromises that can help making renting affordable.
Based on 2011 Statistics Canada income numbers updated to reflect pay increases at the level of inflation, the median income level for people aged 25 to 34 would currently be a little below $37,000. At that level, millennials who like big city life are going to be challenged by the results from this calculator.
In Alberta, the calculator suggests Red Deer as a place to move if you want a one-bedroom apartment and make that median $37,000. In Ontario, Oshawa comes up as an ideal affordable city at that same income level.
It takes an income of $41,500 to get Toronto to come up as an ideal choice for a one-bedroom apartment. In Vancouver, it takes $39,000. Bachelor apartments, anyone? With an income of $35,800, Calgary is an ideal affordable city; at $32,000, Ottawa comes up.
The calculator uses average numbers – maybe you can find a basement apartment in the suburbs to get your rental costs down. Or, try finding a roommate. Finally, there's the moving back home option for some millennials. The original take on moving back home was a reaction to a tough job market. The Where Can You Afford to Rent Calculator suggests high rents are another factor driving young adults back home.