A recent TVO agenda program claims that there is a strong “case against home ownership”. When examined from a purely financial perspective, there is a high cost of home ownership in Canada. Case after case shows it could be cheaper to rent for many than to try to own their own houses.
Here is an example.
A Toronto property is up for either sale or rent. The listing is for $680,000 and the rental is at $2,700. At these rates (and considering you take a mortgage), the annual rent is only 4.8% of the sale price. If you attempted for home ownership, this amount would easily be taken up by property tax, insurance, mortgage interest (or opportunity cost), maintenance etc.
The TVO Agenda program, A Case against Home Ownership, discussed this issue amongst a panel of distinguished guests. Here is the full video below, as well as highlights from the show:
Some highlights include:
- Historical rates of return on investments in housing versus equity markets clearly favour not owning a home. As stated by the economist Professor Shiller, “If there are no other considerations, you want to own a diversified portfolio of stocks and bonds and then rent and you’re putting yourself into assets that have historically done very well in contrast to housing”.
- Home ownership rates in Canada have climbed steadily since 1970 to a current 68% ownership. This is very much in line with the US rate, currently at 67%. This is however in stark contrast to Switzerland for example that is only around 33%.
- Society and consumer psychology has evolved to home ownership as the definition of the nuclear family. Given the huge number of single parents, renting a home could become the new trend instead, allowing people to be more mobile.
- The business of America through government intervention became “housing”, which resulted in much of the recent collapse in many US residential markets.
- Demographic trends dictate that Baby-boomers will be dumping their houses in exchange for town houses, condo’s and seniors homes
We generally believe that much depends on your life stage, but that the staggering rise of house prices in Canada over the last few years suggests that if you don’t own, it’s probably a good idea to keep renting for a while.
Critics like Professor Milevsky of the Schulich School of Business still point out that the argument for or against home ownership is too financially focused. “It’s (the debate) lost the qualitative lifestyle aspect that should drive the decision.”
If you liked this article, read the 5 reasons why it may be better for you to rent instead of own your cottage.