To Rent or Own? Breaking Down The Cost of Housing in Canada

Although much has been written about how rapidly rising housing costs in major Canadian cities have priced out many buyers, particularly those looking for their first home, some Canadians are setting their sights on home ownership as an economically prudent alternative to the financial challenge of consistently increasing rents.

Though it  may seem like an unbelievably lofty goal for first-timers, buying a home may, over time,  actually be less costly than renting. Statistics Canada data show that roughly 40 percent of Canadian renters spent more than 30 percent of their average monthly income on housing costs in 2016. Only 17 percent of homeowners spent that much.  This raises the following question:  despite the high initial cost of ownership, unless rental cost decrease, should Canadians look to save for a downpayment on a property of their own?

A home is an investment and a source of equity on which to build one’s financial plan.  According to the Toronto Real Estate Board, average prices in the Greater Toronto Area, have risen 148% since 2006.  That is more  than seven times the rate of growth of the TSX exchange. Neither the direction of the stock market nor the housing market is guaranteed, but many younger people are doing what they can to use real estate as an investment; particularly if they can take advantage of  “alternative” mortgage options, such as sharing payments among a group of people, the payoff can be significant. Unlike rent cheques, each mortgage payment builds equity in a property.  Equity is the difference between the value of one’s home and your outstanding mortgage.

Of course, there are other costs, so called “sunk” costs associated with ownership, hence when budgeting, factors such as maintenance and repair expenses, as well as property taxes, and sales costs when that time comes, need to be kept in mind.

Pro-renting advocates would suggest that you can build wealth as a renter by investing the considerable savings you realize by not owning a house. Perhaps, but perhaps not.  Clearly this is a highly personal decision which depends on each buyer’s personal timeline and financial goals; prioritizing stability is key no matter which route one chooses; however it is important to note that the question is not as black and white as it is often portrayed.

 

 

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