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.

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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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  • Rob Turner 3 years ago

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

    • Tia Wolfe 3 years ago

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

      • Whiskey Foxtrot 3 years ago

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

        • Marc 3 years 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.

  • Erik 3 years 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.

    • zalzon 3 years 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.

  • Fight Back 3 years ago

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

  • SH 3 years ago

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

    • Sam 3 years 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!

      • zalzon 3 years 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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