This week, Statistics Canada released data showing the total value of Canadian real estate dropped in the third and fourth quarters of 2023. While the total value was up by 1.8 per cent for the year, this tepid performance comes on the heels of a nearly seven per cent drop in real estate value in 2022.
This is a sobering change from the pandemic years, when the seeming promise of sustained low interest rates and ever-higher home values drove frenzied bidding wars.
Despite these price fluctuations, many Canadians view owning a home as a key path to financial security and an important life milestone.
In a 2023 Ipsos survey, 76 per cent of respondents said that owning a home is the best investment a person can make, and nearly half said they felt they would not have accomplished what they need to in life until they are homeowners.
In the same survey, 63 per cent of Canadians who were not homeowners said they had given up all hope of ever owning a home.
But homeownership is not the only path to build wealth and financial security.
A general principle of financial investment is diversification. To reduce risk, people should spread their wealth out among different asset types.
Canadian real estate prices have gotten so high that asset diversification can now be unachievable for many prospective homeowners. Owning a home can mean putting all of your eggs in one basket.
By contrast, a renter with excess savings can diversify, by purchasing a mix of low-cost exchange-traded funds for example.
The transaction costs of such stock purchases are also orders of magnitude lower than the transaction costs associated with real estate. As Canadian Affairs has previously highlighted, real estate fees and taxes typically range between five and eight per cent of a home’s value. For a one million dollar home, this could mean a hidden price tag of up to $80,000 on the transaction.
Renters are also not subject to unexpected repair and maintenance expenses such as a new roof or leaky furnace, which can tack on thousands to a homeowner’s bill.
While these are some of the advantages of renting, these advantages only exist in a well-functioning rental market. Unfortunately, the current rental market is broken.
For one, the rental and housing markets are both unaffordable. As we have previously argued, this is a result of policymakers creating a demand shock through a spike in immigration. Combined with housing supply that is largely inelastic, it was foreseeable that this would lead to a sharp increase in rental and home prices.
Bringing demand for housing down must be a top priority. But what’s also needed are policy decisions that ensure landlords can earn a return on their capital while renters can enjoy stable housing and predictable rents.
At the provincial level, this means ensuring well-functioning landlord tenant boards that facilitate efficient dispute resolution to protect both landlords and tenants from bad actors.
It also means ensuring fair and reasonable rent control. In Ontario, for example, rent control has been approached haphazardly, with current rent controls only applicable to units occupied before November 2018. In recent years, the permitted increases have been well below the rate of inflation, leaving landlords potentially unable to recoup their increased costs. At the same time, renters in newer units have had no protection at all from rent increases in a tight rental market.
Finally, policymakers must stop subsidizing home owners. The Liberals this month took one step in the right direction by cancelling the ill-conceived First-Time Home Buyer Incentive, a subsidy that encouraged homeownership among first-time homebuyers.
The federal government’s First Home Savings Account is another example of a subsidy to potential homeowners that should be eliminated.
It should be possible to achieve the Canadian dream as a renter or homeowner. Governments should facilitate both paths equally, so individuals can make a considered decision about owning a home or renting one.
