It’s OK not to be a homeowner

by Andy Fisher, CIRP, LIT
June 4, 2024

The great Canadian Dream is to own a house. Many Canadians grow up with the expectation that at some point they will own their own home.  We are constantly seeing news about government officials, economists, and politicians talking about the housing affordability crisis.  And most of the discussion is about how difficult it is for young people to afford a house.

But the “cult of home ownership” is shifting. Many Millennials and Gen Z-ers do not feel that they’ll ever be able to own a home.  According to a 2023 Globe & Mail on line survey, 44% of the participants felt that home ownership was not going to be an option for them. Only 20% felt that they would eventually own a home. 

There are many reasons why so many people feel owning a home is not in their future. House prices are at or approaching record highs. Saving for a down payment is out of reach for many. And with the high interest rates (at least relative to the last 15 to 20 years), many people can’t afford the mortgage payments.  

But I think we need to change the narrative. It’s OK to rent and to never own a house.  In many major cities around the world and in many European countries, lots of people never own a house. And in many cases, the renters are relatively wealthy individuals and families.  

When people think about owning a home, they often only look at the mortgage payments. But there are several other significant costs for homeowners that a renter doesn’t need to worry about.  Property tax and insurance are two obvious additional costs. But most people also don’t factor in the costs of repairs and maintenance when considering owning a house. As a homeowner, you’re responsible for the costs of replacing a broken appliance, fixing and updating the furnace or air conditioning, paying for the regular maintenance on the heating and cooling system, paying for a new roof, etc.  As a renter, those are all costs that the landlord has to pay.

When all the costs are factored in, it’s often cheaper to rent than to own a house.  And if you are disciplined and able to bank those savings, you could end up further ahead financially as a renter. 

PWL Capital, a wealth management firm, has developed a guideline termed the "5% rule" concerning the decision between renting and owning a home.  This rule examines the various expenses associated with homeownership, including property taxes, insurance, maintenance, and capital costs, which do not contribute to the property's residual value. Following an assessment of these ownership expenses, they have determined that if the annual rent for a home amounts to less than 5% of its total value, opting to rent may prove financially advantageous.

In essence, this rule suggests that the potential financial gains from investing the surplus funds (i.e., the disparity between rental expenses and ownership costs) as a renter surpass the financial advantages of homeownership. As an illustration, considering a scenario where the monthly rent for a comparable residence amounts to $3,500 ($42,000 annually), choosing to rent would be financially preferable if the cost of purchasing the property exceeds $840,000.

Another factor to consider is the personal side of renting vs owning. We’ve all heard the phrase house rich, but cash poor.  Renting a home often provides much more financial flexibility to travel, go out for dinners and have a less stressful life.

There are lots of advantages to owning a house, but it’s not right for everyone.  And as a society, we need to open our minds to the fact that renting a house is a better option for many, regardless of their financial situation.

To learn more, reach out to Andy Fisher here

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