Canadians have seen their wealth surge through a simple act—just paying their mortgages. The problem, according to the country’s largest bank, is that one person’s inflated housing wealth is another person’s hurdle to shelter. RBC warns the issue is now so bad, the vast majority of people will never be able to afford to buy at today’s prices, as values are rising multiples of disposable income. Good news for those who already own, but a huge problem for young adults that now find themselves locked out of shelter and wealth, while housing sucks up investment from virtually every other area of the economy.
Canada Concentrated Wealth In Homeownership
Canada’s real estate bubble has concentrated wealth in a single area of the market. According to the bank’s analysis, homeowners have seen their net-worth rise 9x disposable income over the past three decades, and 13x since Q4 of 2010. At the same time, renters saw just 3x and 3.6x growth over the same period.
“Home ownership is the primary method of accumulating wealth in Canada with nearly half of the household wealth amassed over the past three decades driven by residential real estate,” explains Carrie Freestone, the RBC economist who authored the report.
Housing wealth being this concentrated is typical in older, or less advanced economies. In contrast, the US became world-renowned for its housing concentration in 2008. The value of all housing represented 31% of household net worth, and currently sits at just 23% of total net worth.
Most Canadians Could Never Afford A Home At Today’s Prices
Renters are seen as less affluent, helping to dismiss the wealth gap. Lower income households would obviously see smaller increases in wealth. That’s not the case today, where even higher income households are now locked into this demographic. All lower income households rent, but not all renters are lower income in Canada.
The vast majority of Canadian households could not afford to buy a home based on income. As a result, the bubble didn’t just lock younger adults out of shelter—it also locked them out of the bubble’s wealth accumulation.
“… home ownership has never been less accessible. More than two-thirds (68%) of Canadian households can’t afford to purchase a home based on earned income alone,” warns Freestone.
Without the housing boom, in a stagnant market for both equities and housing—renters and owners aren’t that different. The bank notes that in 2020, household savings was 22% for those who rent vs a nearly negligible 24% for homeowners. Both were assisted with government grants and payment relief to help.
Post-pandemic that isn’t the case. Stimulus pumped into the housing market began to widen the gap towards the end of 2020, with renters observing negative wealth in 2021 and beyond.
“Canadian renters are devoting a greater share of their take-home pay to housing costs, much more than homeowners. Many renters may not be able to enter the house housing market with the limited scope to save for a down payment. As a group, renters spend more than they earn,” she warns.
Adding, “this threatens renters’ path to accumulating wealth—which could exacerbate inequality over the longer term.”
The distortion of Canada’s housing market is a double-edge sword: on one hand, the problem appears to be that renters are locked out of the housing-based wealth that was generated. As a result, those who rent see their savings turn negative as they generate wealth for others, while also not benefiting from boosted values.
On the other hand, the state-backed market created circumstances where housing is perceived as risk free. As a result, capital is being diverted from productive areas of the economy. Short-term gains produce a handful of new owners, but it also creates even more long term-damage. Canada is already close to logging a Lost Decade—but that doesn’t mean it won’t try for a lost Quarter-Century.
‘The vast majority of people will never be able to afford to buy at today’s prices.’ The government can begin to address this by adopting tax policies that discourage speculators. The government should also do something about massive money laundering in real estate. 20 years of artificially low interest rates helped create a massive real estate bubble and the BOC seems eager to get it going again.
welcome to trudopia
You’re rich if you sell your house and go live in a cabin. Otherwise you sell high, you’ll need to buy high.
It hurts me to see my once great country slowly turning into a third world nation. One that actively seeks to shut out it’s youth from home ownership and living a prosperous life. Instead we allow real estate to be our largest industry and means of wealth accumulation giving the rich and large investment firms a leg up over the average citizen. They drive up the cost of real estate buy speculation and by the lobbying of our government to bring millions of people to populate their factories and private education. This in turn drives up the cost to rent and we become a nation of house poor people. A nation whose identity is being stripped away while people live in enclaves, not the melting pot our leaders tried to sell us. A huge country with almost limitless resources, but people are living in cars, tents or renting 25 per unit (this happened in the GTA). No wonder our young feel so helpless and hopeless, many talking about moving somewhere where there is some chance of opportunity. Good luck trying to find it though.
The financial burden of ever-increasing rents and not being able to accumulate wealth are two of the most obvious and most serious disadvantages of renting, but there are many others not often mentioned e.g.
Love gardening? As an acquaintance recently discovered, all that the hundreds of hours and dollars spent by them on the garden over the last few years did, was to make the property easier to sell out from under them.
Pets? Not an option for many tenants. Even if one is lucky enough to find a landlord that allows pets, it is unlikely that the next landlord will when one is inevitably forced to move.
Appliances? Love cooking and hate the range that only seems to have one temperature. Need a larger fridge, or have to tolerate a drier that sounds like a jet taking off while damaging one’s cloths.
Tough, your landlord will refuse to replace appliances that are functional but barely usable, or, when these are actually beyond repair replace them with the cheapest appliances possible.
Of course, there are many other disadvantages to being a tenant. Such as in BC not being able to take advantage of property tax deferments, the home owner grant, or eligible for rebates on cheaper forms of heating such as heat pumps. In effect, these last three amount to renters, who pay the same provincial taxes as homeowners, essentially subsidizing those homeowners.
You nailed it, AllenB! I so hate renting for those reasons and more – I’m absolutely furious at the government idiots who allowed (encouraged!!) homes to become casinos instead of shelter. I never ever thought I would rent this long (after selling condo), but I will never take on a million-dollar mortgage either. So here we sit with downpayment in hand, debt-free. But at least over time renting continues to get more favourable cost-wise… right up until we are inevitably forced to move yet again. I now hate this stupid country and can’t wait to move somewhere else in a few years. And I’m a third-generation Canadian.
The market still needs a major rebalancing, which has to come to get things back to normal.
This is not a normal market.
Agreed but until this government is gone, there will be no normal. The lies, the economy is strong, they are building homes (that no one wants) faster than ever, they support Canadians – won’t stop.
We need them gone-now. Another year and a half will crippler Canada.
I feel were already crippled now.
As long as people continue to go with the flow and purchase at these prices there won’t be a correction that’s needed.
I think its inevitable but is being delayed by allowing these new 50-100 year amortizations.
How long will it take for people to realize they are never going to pay off their mortgage.