CMHC warns on homeownership risks
It’s an age-old question: is it better to rent or buy?
The debate resurfaced this week after Canada Mortgage and Housing Corporation CEO Evan Siddall told BNN Bloomberg Canadians need to change their perceptions around homeownership as a savings vehicle, warning “this party ultimately comes to an end” and young people will suffer the most.
Homeownership has long been glorified in Canada, but experts say sky-high prices in some of the country’s most popular cities should force prospective buyers to shift their thinking.
Lauren Haw, chief executive officer of real estate website Zoocasa, said the younger generation’s desire to own a home stems from the success they’ve seen from their parents.
“I think what’s happened with people in the millennial generation, in terms of investment, owning a home has done very well for the baby boomers. And it has been a dream for their children because of that,” she said in a phone interview.
“They are hoping for results to repeat.”
Affordability has been a growing concern in Canada’s priciest cities, leading the federal government to introduce the First-Time Home Buyer Incentive in its latest budget, which Siddall said is meant to help young people enter the market without pushing prices too much higher.
While affordability continues to be a challenge, a recent report from RBC Economic Research found millennials are still flocking to Canada’s most expensive markets because of economic opportunities and cultural appeal. However, RBC Economic Research Senior Economist Robert Hogue added that the rate of young homeowners could fall in the future because skyrocketing prices in Canada’s big cities set an “impossibly” high bar, and a greater proportion of millennials will likely need to rent in the future.
Haw said a person’s decision to rent versus buy in today’s housing environment depends on his or her individual situation and whether they plan to live in the home long term, adding she still believes in homeownership.
“I do think homeownership makes sense for the majority of Canadians – but I don’t think it’s a black and white case,” Haw said. “Like with anything else, there’s trade-offs. Real estate should be thought of as a long-term investment. It doesn’t make sense financially constantly to buy and sell. Through that turning of real estate, you can burn a lot of the appreciation.”
“If you’re going to stay put for a long time, you should own your home.”
But when it comes to thinking about homeownership in the country’s big housing markets, one money manager says there are some misconceptions.
Which of these is your view of property ownership?
“Renting is not a faux-pas,” said Kash Pashootan, CEO and chief investment officer at First Avenue Investment Counsel, in an interview on BNN Bloomberg Thursday. “There’s nothing wrong with renting. And there’s this stigma of if you are economically stable and successful you own, and if you are starting out and you don’t have wealth or stability, you rent. And that’s absolutely not true, especially when you look at larger markets.”
He added that there shouldn’t be an expectation that everyone can walk to work, calling it a luxury that is just not a reality for those living in larger markets like Toronto.
John Pasalis, president of Toronto real estate brokerage Realosophy Realty, said he agrees and disagrees with the idea that Canadians are placing too much value on homeownership.
“I agree that sometimes people put too much emphasis on buying and this can be a problem when people really stretch their budgets in order to buy a home,” he said in an email.
“On the other hand, it is a bit bold to lecture Canadians for desiring to own a home when governments have done nothing to build a viable rental alternative,” he added, noting the Greater Toronto Area, which is facing population and job growth, has seen little new purpose-built rental housing in decades.
Still, Pasalis said if you want to own a home and can afford to buy one where you live, it’s still a good option.
“The challenge is what happens when you can't afford to live where you want to live. For these people, it's a personal decision: do you prefer to rent in a location that you love or do you prefer moving a bit further out to a more affordable location because you really value home ownership?” he said.
“There is no right answer.”