The traditional argument holds: While buying a home can build long-term equity and stability, renting can provide flexibility and fewer upfront costs. But as home ownership becomes a far-fetched dream for many young Canadians, can renting for life be a viable option?
Alex Avery, author of The Wealthy Renter, thinks so. “It’s different for every person, and each individual’s needs change over time, but I’m still a firm believer that renting is a great option,” he said.
Despite rental prices having soared since publishing his book in 2016, Avery says renting is still cheaper and carries less risk than buying. “People compare mortgage payments to monthly rental rates, but mortgage payments don’t begin to cover the full costs of home ownership,” he said. These costs can include notary fees, realtor commissions and region-specific taxes when purchasing the property as well as ongoing costs such as mortgage interest, property taxes, insurance, and various maintenance and repair expenses.
Avery was inspired to write his book during what he calls was a “speculative bubble” in the housing market at the time that he said created a perception of home ownership as an “easy out for savings,” especially in urban centres like Toronto and Vancouver. “[Young Canadians] were being pressured to buy a condo when the math never made any sense,” he said.
Should you rent and invest the difference?
Vancouver realtor Owen Bigland’s calculations paint a different picture however. With average monthly rent for a one-bedroom unit in his city now hovering around $2,800, a lifetime renter could spend at least $1.3 million by the time they’re 65 (not accounting for rent increases or inflation), according to Bigland. “And you’ll have zero to show for it. Where’s the savings here?” he questioned.
Even if monthly rent was cheaper than a mortgage payment, Bigland said many Canadians will likely spend any savings rather than invest it and grow their wealth.
“A lot of Canadians don’t have the discipline to save as much as they should,” said Sebastien Betermier, an associate professor at McGill University who studies Canadian household spending.
With rents making up at least a third of household expenditures, and homes making up 70% to 80% of home owners’ wealth portfolios, Betermier says both renters and home owners alike are exposing themselves to big risks.
Recent data from a survey by the Healthcare of Ontario Pension Plan and Abacus Data suggests the same. More than a third of Canadians report having less than $5,000 in savings, and those who own a home are increasingly relying on their home equity to fund their retirement.
The advantages of home ownership
Bigland preaches home ownership for this very reason. He encourages chipping away at your mortgage and building equity so you can benefit from any price appreciation in the future. “The only real cash shelter we get in Canada is the principal residence exemption,” he said.
Put another way, “you’re essentially renting [the home] from yourself,” said Betermier. He adds that your home can act as collateral should you need to borrow against it someday. Most mortgages from big banks typically include a built-in home equity line of credit (HELOC) at a favourable rate, according to Bigland. “It’s accessible money without selling your home.”
Avery, however, doesn’t buy this argument. “It presupposes that housing is a safer investment than other investments,” he said. “There are many places where house prices have gone down, where employment prospects change over time.”
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Investment alternatives if you’re not buying real estate
As an alternative to relying on your home as an investment, Avery suggests putting your money into an RRSP, TFSA, and the FHSA, which doesn’t necessarily need to go toward a home purchase. “You can learn about index ETFs too. There’s a lot of different ways to invest your money,” he said.
Avery, who’s gone the home ownership route himself, doesn’t think buying is a bad decision, but warns against it if you’re banking on it as an investment tool. “That’s conflating two different objectives,” he said. “One is to house yourself, and the other is to generate wealth.”
But Bigland, who’s also written a book on real estate and stock investing, says you should be doing both. He agrees renting can make sense in some situations like if you’re anticipating a change in jobs, but you should consider buying if you can commit to a location for eight to 10 years.
He suggests first-time buyers start with older buildings close to public transit often sitting on valuable pieces of land. “You’ll probably have a developer [buy] in 10 or 15 years, and that might be your exit strategy, he said. “Even if you’re a blue-collar guy, if you can get $40,000 down, maybe even forgo the car for a little while, you can do it.”
