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Brandon Hepworth and his partner have agreed to never own a house.
“It’s definitely not within our means,” he said.
Hepworth and Lorie Ganley, both 28, live in a one-bedroom apartment in Montreal and pay $1,200 a month in rent. Even though buying was once something they talked about, rapidly rising real estate prices have made home ownership unrealistic for them.
“We would love to have a spot, but it’s not something we’re actively working on,” Hepworth said.
The couple recently returned to school and work part-time. Hepworth studied electrical engineering while working in an administrative position at a hospital. Ganley is completing her master’s degree in theater and working at a local theater.
Their next financial goal? A car or a vacation, says Hepworth.
With house prices rising at a much faster rate than wages, home ownership has become increasingly unaffordable for Canadians.
February housing data from the Canadian Real Estate Association shows that the average price of homes in Canada has jumped 20% over the past year.
According to a report by Mustel Group and Sotheby’s International Realty, more than 80% of respondents aged 18 to 28 living in urban centers said they feared not being able to buy a home in the community of their choice due to rising real estate prices and half have completely given up on the dream of owning a single-family home. The survey of 1,502 respondents was conducted in fall 2021.
A place of your own
For Hepworth, owning a home would provide reassurance that his space was truly his. However, the couple are well aware of the high cost associated with ownership. Hepworth said Ganley’s parents nearly went bankrupt due to maintenance costs on their roof.
“I’m not going to go bankrupt because the place I’m renting, the roof is leaking,” he said.
In Toronto, Javan Wang and his partner, Khrystyna Skira, 26, don’t see themselves buying a house for the foreseeable future.
The couple rent a two-bedroom condo in North York for around $2,500 a month. Wang, a product designer, and Skira, who works in IT, said that if they bought, they could only afford a space half the size of the one they live in and that they would probably have to move further.
This contrasts with their current situation: they live along the metro line, close to shops and restaurants, and are in a rent-controlled building.
“Renting currently seems like the best option overall,” Wang said.
The couple hope to buy a house in six or seven years. However, if prices continue to rise, that deadline is likely to be pushed back further, Wang said.
Both raised by single mothers, Wang and Skira are surprised to find themselves in this situation while earning more money than they ever saw coming into their homes growing up.
“I grew up in a semi-detached house,” Skira said.
“There’s no way we can even afford anything close to something this size these days.”
For Wang, owning a home gives an extra sense of security that renters don’t have when dealing with a landlord who might choose to sell the house or be difficult with repairs.
“It’s just kind of a North American dream,” he said.
“You’re kind of brought up on this idea that you have your own backyard.”
The right decision depends on the stage of life, says a real estate professor
Murtaza Haider, professor of property management and director of the Urban Institute at Ryerson University in Toronto, said renting and buying can each make sense at different times in life.
For those in their 20s or early 30s, renting might be a better option as it offers flexibility.
“When you’re young, I would say the best option is to rent until you know you’re here for five to 10 years, and that’s when you invest in the property,” Haider said.
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However, as people enter other stages of their lives, such as starting a family, Haider said it would make sense to become a homeowner.
As to whether there’s a financial justification for forgoing buying in favor of renting, Haider doesn’t believe so.
“I know people have written books about it, making cases about the wealthy tenant. I’m not buying it for a second,” he said.
Haider said the data shows higher wealth accumulation among homeowners than among renters, and while not all of that wealth accumulation is due to home ownership, some of it is related to the constitution of own funds thanks to “forced savings”.
“Your monthly mortgage is a forced savings program,” he said.
Haider said young people might be too pessimistic about their prospects for homeownership. More realistic goals, like considering condos instead of single-family homes and moving out of town and commuting, he said, might be more appropriate.
Challenging the orthodoxy of homeownership
Ben Felix, portfolio manager and head of research at wealth management firm PWL Capital, has a different perspective on the rent versus home ownership debate.
“There is no clear choice,” he said.
Felix, who has a YouTube channel and discusses personal finance topics including this very issue, said people often think of renting as “throwing away your money.”
However, home ownership also has sunk costs, he said.
The portfolio manager uses what it calls the “five percent rule” to compare renting and owning. He said that if the cost of renting a house is five percent of the purchase price, then the two choices are financially comparable.
With the 5% rule, Felix said renters who spend less than 5% are actually better off financially than if they had to buy.
Finances aside, people overestimate how happy owning a home would make them, Felix said, noting that research shows mixed results on whether homeowners are happier than renters.
Felix said those who choose to leave town to buy a home face commuting, which can have a negative impact on well-being. This is on top of the time spent dealing with repairs and other home ownership responsibilities.
“I think taking other things like that into account is extremely important both financially and in terms of life satisfaction.”
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