In the summer with great joy I helped a very innovative #MR team publish their research and findings on the impact of the overheated housing market in the Toronto-GTA precincts and how it was turning away millennials. As a god-deigned forever renter, with millennial friends (and older) who already own homes, this book struck me like a charm. Or, more like a caveat. Confirming that the choice to rent was more sensible, subject to circumstances. But renters can’t be choosers, right? Alex Avery in his book The Wealthy Renter: How to choose housing that will make you rich (Dundurn 2016) analyzes Canada’s major housing markets to argue that the more efficient way to navigate housing in the big cities is to rent consistently, within one’s means. It’s more affordable and stable than the brokers, mortgage brokers, real estate traders, peers or elders may lead you to believe.

If you thought home-ownership was the hallmark of stability, achievement and the road to fortune, perhaps consider Avery’s arguments: Don’t believe your parents just because they bought a home to ring-in their version of stability. Don’t believe your brokers who lure you with forced savings[1], investment potential and resale values. Housing prices never or rarely appreciate unless in LA where land was always abundant no matter how many people moved there. Typically, it is the land that appreciates and its ripple-effect seen in home prices. In New York, land is scarce and builders buy existing buildings they tear down to build higher density expensive housing (Manhattanisation, where low rise apartments replace single-family homes and sky-rise buildings replace low-rise ones).

In real estate, the rule maker and breaker is always “location” – best defined by proximity to transit, amenities, jobs and people. Downtown cores are overcrowded and always in construction, but offer the convenience of better commutes and connectivity, and thus higher prices. In the US, the pivot of wealthy households to renting has spawned a demand for rental properties creating an overheated rental market in the cities, job centres and densest population hubs[2]. Home-ownership, moreover, poses recurring financial burdens like maintenance costs (with a disappointing resale value or moving costs in case of having to relocate), whereas renting demands only monthly rent and utilities and upkeep is the landlord’s job. For vastly vagrant North Americans who move on an average of once every seven years (although this has gone down for Americans of late[3]), owning can be a dangerous indulgence without significant returns.

While home ownership makes up 38% of average Canadians’ wealth,  six in seven Canadians think that housing is unaffordable.[4] Affordable housing is especially a challenge in the cities. As working populations flock to the cities and downtown cores in every possible metropolis, it becomes imperative to examine the facts and myths when faced with big housing decisions. Avery warns, “Borrowing to buy a home has destroyed huge amounts of wealth and put families out of their homes, and leverage is the main reason.”[5] . While, the same could be said of other expensive investments like education, automobiles, or other huge purchases, the argument of homes offering no future prospects worth promise, holds some water, even if not “everyone” is convinced of their riskiness.  Avery cautions readers in favour of knowledge and complete self-awareness of one’s circumstances in relation to one’s desired housing markets and choices. If not careful, home buying could quickly pile on the “investment creep” and eternal debt. Home prices may rise or fall, presenting the sort of Catch-22 in home-buying in either scenario where high leverage disadvantages you over the short term, and low leverage causing people to build fortunes over time but with not even the comparable profit to S&P TSX composite investment returns, according to Avery.

A snapshot of the big six Canadian housing markets below illustrates the potential of ownership and renting choices in each city:

Vital Stats	Toronto	Montreal	Vancouver	Calgary	Ottawa	Edmonton
Population	6M	4M	2.5M	1.4M	1.3M	1.4M
Annual growth rate (15-yr  average)	1.6%	1%	1.4%	2.8%	1.3%	1.4%
Immigrant share	46%	46%	40%	26%	23%	20%
Homeowner share	68%	55%	65.5%	74%	67.9%	70.6%
Housing Stock	Detached homes and high-rise apartments. Decline in detached homes recently	Mostly low-rise;  a transition to high-density apartment style housing	Mostly low-rise, single family housing market	Highest market share of ground-oriented housing; Detached followed by semi-row, Duplex	Detached followed by semi-row, Duplex	Detached followed by semi-row, Duplex
Ideal for	Renting	Renting and home ownership	Renting	Owning and renting	Renting and home ownership	Affordable home ownership but exposed to volatility of energy sector
Price to rent	34.9X	37.8X	48X	29.8X	26.2X	25.9X
Price to Income	8.5X	5.6X	12.4X	4.3X	4.2X	3.8X

Calgary has the highest homeownership rates. Montreal and Ottawa offer the least risky options in home-ownership and renting, with significantly lower costs to renting. Toronto and Vancouver provide the best cost-savings in renting over home-ownership, but cheap housing is not the only metric that should influence housing decisions. Vancouver and Toronto offer the greatest cost-savings to renters vis-a-vis homeownership as captured in the data above.

One could be more right than another, but the case for renting is well-argued with rich data from from Statistics Canada, CREA, CMHC, Bloomberg and elsewhere; data labels on the pie-charts would have helped. I was also interested in knowing more about the share of homeless with relation to the renters-to-owners proportion offered for each city (given how precarious housing conditions exist and how easy it can be to fall into this cohort if one isn’t careful enough!) – but perhaps that’s topic for a different book.

How to thrive as a renter?

Falling interest rates and rising home ownership are causing house price appreciation in over the past decade and a half. The savings you make by renting consistently, wisely and modestly, allow you to make career decisions more freely, whether practical (eg. moving to another neighbourhood in case your office moves) or hypothetical (in anticipation of a future event like job-loss, divorce, death). If wealthy renters have it better, lower-income renters criticize the lack of assistance provided to renters vis-à-vis homeowners; it is important to note that the fastest growing group among the homeless are families who rent owing to the lack of affordable housing options on the market.[6] Housing models such as  cooperatives are filling a huge gap here, but the demand for these models far outstrips the supply. Waiting lists for market rent units in housing co-operatives in cities such as Toronto and Vancouver can stretch for three to five years, at a minimum, while waiting lists for subsidized units in housing co-operatives are closed in many instances.

Affordability isn’t the only component of a healthy housing market. Income potential, sustained price growth, low unemployment and a strong economy are others. Canada wide, Guelph appears to top the real-estate buyers’ market.[7] Rental options in the big six look the brightest in Ottawa, a stable, healthy economy driven by government jobs, low unemployment, a strong tech-sector, and a thriving arts and cultural scene.[8] Generally, those with more (income) own homes, and those with less, rent. And yet, the options are scarce and as demand for rentals skyrocket, finding affordable rental accommodation in the cities is getting harder. Regardless, the decision on whether to buy or rent a home must be made before approaching mortgage specialists or sales agents as those professionals are naturally biased towards home-ownership.

Avery explains the cost-benefits in renting well and altered my prior ambitions of owning if any, because he comes with a solid understanding, rationality and respect for those facing real-estate dilemmas. He wants us to commit wisely to our choices depending on our circumstances, so that we can exercise thrift and thrive in the housing market whether as an owner or renter and whether we are high-rise, low-rise, single-family, or any other type of housing hunter. This book comes well-timed in the context of research about Canadians’ increased hesitation to rent. Half of the respondents to an EKOS poll who consider themselves poor or working class believe that the cost of local housing is beyond their means[9]. This is indicative of the provisions that need to be instituted to encourage a healthy renters’ market for all.

I missed reading about smaller cities or towns like Niagara, Guelph or Moncton, little hubs of prosperity. The appeal of the “big six” is unmistakably more exciting with 40% of Canadians renting homes in the three largest cities of Toronto (home to a fifth of Canada’s population!), Montreal and Vancouver, and 50% of Canada’s population living in the cities. But, it would be interesting to compare notes across smaller towns and cities outside the six as well.

[1] Avery recommends alternative forced savings programs including automatic transfers, corporate share purchase loans, automatic payroll deductions, bond purchase programs, dividend reinvestment programs, corporate matching programs, government retirement programs, employer pensions, and plain old-fashioned discipline!

[2] Misra, T. (2017, ). CityLab. The Rise of the Rich Renter – CityLab. Retrieved October 01, 2017, from http://www.citylab.com/equity/2017/10/the-rise-of-the-rich-renter/542007/

[3] Florida, R. (2017, February 02). CityLab. Retrieved October 01, 2017, from https://www.citylab.com/equity/2017/02/american-mobility-has-declined/514310/

[4] Graves, F. (2017, June 27). Ekos Politics. Retrieved October 01, 2017, from http://www.ekospolitics.com/index.php/2017/07/housing-affordability-crisis/

[5] Leverage includes the initial down-payment you make towards house-purchase and what you borrow.

[6] Hulchanski, PhD, MCIP, J.D. (2001, August 01). Research Bulletin # 2. Centre for Urban and Community Studies.Retrieved October 01, 2017, from http://www.urbancentre.utoronto.ca/pdfs/researchbulletins/02.pdf

[7] Brown, M., & King, R. (2017, April 11). Macclean’s. Canada’s top cities to buy real estate in The best city to buy in is a steal compared to Toronto. Retrieved October 01, 2017, from http://www.macleans.ca/economy/realestateeconomy/canadas-top-cities-to-buy-real-estate-in/

[8] Brown, M. (2017, July 04). Macclean’s. Canada’s Best Places to Live 2017: Overview. Retrieved October 01, 2017, from http://www.macleans.ca/economy/canadas-best-places-to-live-2017-overview/

[9] Wilkins, G. (2017, July 04). Baystreet.ca. Poll Shows Canadians Fretting Over House Prices. Retrieved October 01, 2017, from https://www.baystreet.ca/articles/economiccommentary.aspx?articleid=31169#.WVz4MF1nQ9Q.twitter

 

Storytelling Alex Avery Canada Home ownership Housing Market Leverage Mortgage Real estate Renting The Wealthy renter