Canada Global

Canadian Real Estate Buyers Pay Steep Premiums To Own Vs Rent

Canadian real estate buyers pay steep premiums to own, compared to their global peers. IMF research shows Canada’s house price-to-rent ratio, the difference between renting and buying, is one of the highest in the world. Owning a home in Canada more closely resembles ratios in countries like Latvia and Slovak Republic, than countries like the US and Australia.

House Price-To-Rent Ratio

The house price-to-rent ratio is the annual cost to carry a house, compared to rent in the region. Ownership costs include some other fees like property taxes, but also leave out some costs like maintenance. The ratio does not tell us anything about “affordability,” since income isn’t a factor. Instead, it strictly compares ownership vs renting. Looking at this number, we find out what kind of premiums homeowners are willing to accept paying.

There’s a few reasons you want to look at these numbers, but the biggest is relative consumer value. The ratio is often used by economists to determine whether a market is fair, undervalued, or in a bubble. The most notable use of these ratios was during the US housing crisis, during which researchers flagged the ratio’s performance in 2004, when it passed 115%. Four years later, the US was declared a bubble as it collapsed and people flowed away from ownership. Now let’s look at where Canada is, in the context of the rest of the world.

Canada’s House Price-To-Rent Ratio Is The Highest In The G7

Canada currently has one of the highest house price-to-rent ratios in the world. The ratio was 122.43% in 2019, meaning it costs 22.43% more to buy than rent. Overall, it’s the 8th highest in the world. No G7 country ranks above Canada, with mostly smaller, developing economies ranking above. This is likely why Canada has so many negative cap landlords currently in the market.

House Price-To-Rent Ratio

The house price-to-rent ratio for IMF tracked real estate markets in 2019.

Source: IMF, Better Dwelling.

Canada’s Ratio Is Higher Than 80% of Economies Tracked

Canada’s house price-to-rent index is substantially higher than its international peers, especially the US. About 80% of countries tracked by the index have lower ratios. The US is all the way down at number 25 with 108.99%. Canada’s premium is closer to countries like Latvia and the Slovak Republic, than the US.

This year is only half over, but Canada’s numbers are likely to change – and not in the direction one might expect. Rents are currently falling, especially in cities like Toronto and Vancouver. Meanwhile, house prices have managed to stay at a similar level or even rise. This would send the ratio even higher, unless house prices see similar drops as well. There’s a few forecasts that see house prices following rents in the second half of 2020, but so far there’s limited movement.

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11 Comments

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  • Reply
    Rob Turner 5 days ago

    Ratios are worse in Toronto. Probably closes to 140% if it’s 120% across Canada. Rents in Toronto are also down another 5%.

    • Reply
      Tia Wolfe 5 days ago

      I don’t even want to know how bad it is in Vancouver then

      • Reply
        Whiskey Foxtrot 5 days ago

        Vancouver rents are surprisingly close to mortgage payments until recently. They’re falling now, but I’m not sure how far though.

        • Reply
          Marc 5 days ago

          Condo prices in Vancouver are falling, and ditto with pre-sales. It’s a crap show.

          Detached are also falling, but the board is delusionally doing shifted comparisons on year-over-year without explaining it. They’ll explain it when it amplifies the losses.

  • Reply
    Erik 5 days ago

    Yes, and I believe Evan Siddall, the head of Canada’s government mortgage insurer, said countries that focus on homeownership also have low levels of long-term economic growth. When Canada went all into housing in 2015, they created very long-term damage it won’t be able to escape.

    • Reply
      zalzon 3 days ago

      then how come he’s been fuelling this trend all along
      and sending the mortgage default bill to taxpayers?

      the guy is complicit in the whole real estate price rigging scam to profit banks and leave taxpayers with the downside.

  • Reply
    Fight Back 4 days ago

    Under the Liberals housing have become unaffordable in Toronto. They completely screwed young people over. Not voting for them again.

    • Reply
      Balky Bartokamous 1 day ago

      You do realize that it was both Conservative and Liberal governments that propped this up and fueled the fire for 13 years now right? You do know that it was Harper that put in the 40 year ammo before having to quickly remove it after seeing what it did to the US. You do realize that the bank of canada is autonomous and that when they dropped the rates to combat the oil crash it spiked speculation and buying?

      At least know why things happen and who you should be angry with rather than just ranting and not understanding at all.

  • Reply
    SH 4 days ago

    Meanwhile, Toronto city council planning a taxpayer funded bailout of AirBnb speculators:

    https://mobile.twitter.com/anabailaoTO/status/1288120910843506693

    • Reply
      Sam 3 days ago

      Don’t get me wrong, I’m similarly outraged at this idea, but I don’t think airbnb landlords will like it either… People are in short term rental business to make a quick buck, I don’t think they like the idea of signing long term lease at discounted rent to convert their unit to low income housing!

      • Reply
        zalzon 3 days ago

        After distorting real estate prices to profit a select few on the way up, now they want taxpayers to subsidize these flippers on the way down.

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