Renting or buying? We have a winner
Most Canadians don’t see many benefits in renting a property, desperately wishing to have their own home.
And it’s almost a crime to keep arguing about it, when a rising number of young adults are forced to rent for a long period of time, or even forever, because of the housing affordability issue. However, the battle continues.
The company Royal LePage has released its study results, focused on whether it’s better financially to own a property or rent. It shows that owning was more financially profitable over the long term than renting in 91% of the cases analyzed, based on a 20% mortgage down payment.
According to Royal LePage, the buy-versus-renting dispute is over: the winner is owning, and renting didn’t have the slightest chance.
However, a growing number of Canadians will have to keep renting until real estate prices go down. Amid Canada’s housing crisis, the state of renters is even worse than the affordability issue.
A healthy real estate market needs rentals to grow the next wave of buyers as they build their careers, save for down payments and plan their families. Of course, we need to build more properties for first-time buyers, but first, we need to provide more affordable high-rise rentals where you can live without fear of eviction.
The Royal LePage report says it’s difficult not to benefit financially from owning a home in the long term. The main idea is that you can’t compare mortgage payments and rent. The entire rent goes to the landlord, while only part of the mortgage payment is lost as interest. The rest goes toward increasing your equity, so it should be excluded from the long-term cost calculation.
The report includes property taxes, insurance and an allocation to maintenance and repairs ($60 a month) into the owner’s costs. The net monthly cost of owning was $769 cheaper on average than renting in 278 cases analyzed in the study. The paper calls it “the ownership advantage.”
Nevertheless, the study also shows that owners with a 25-year amortization pay an average $705 more a month in a real-world sense. In other words, this advantage is not actually useful, as you can’t buy goods for it or pay for the services. It only shows that the owner will have a house for many years, while the renter will not.
There are numerous comparisons of renting and buying online. Although renters don’t build their equity, they still have more monthly savings and can invest, increasing their wealth. In addition to it, renters are more mobile in accepting better jobs in other cities.
However, renting doesn’t give you the financial highs of home ownership. Real estate prices have grown drastically over the previous 18 months, following almost 20 years of strong increases. As a result, the value of properties for long-time owners has doubled and tripled, providing them with unbelievable equity gains.
The housing market boom has practically destroyed any advantage renting could have. If you rent, you deprive yourself of the equity growth owners can enjoy, and become dependant on unpredictable landlords who can raise your rent or evict you.
Although the pandemic led to a decline in average rents in large cities, we can already see it recovering. There are cases of bidding wars among renters, and it’s not limited to the big cities.
Renting is just a temporary alternative to unaffordable housing that almost everyone believes is worse than owning a property. It’s important to solve this issue, and studies are not enough.