Canada

Canadians Are Paying Big Premiums To Own Instead of Rent, Shows CMHC Data

Households in Canada’s largest real estate markets are big premiums to own. Canada Mortgage and Housing Corporation (CMHC) analysis shows the gap between the cost of owning and renting in 2020. Carrying costs in the largest market are now almost double that of paying rent. That isn’t a general rule though, with some markets cheaper to own than rent.

Toronto Condo Buyers Pay an 86% Premium To Own

Greater Toronto real estate has the biggest gap between owning and renting. Condo apartment owners are paying 86% more to own than rent in a purpose built building in 2020. This is down from a peak of 101.47% in 2018, due to climbing market rents and falling interest rates. However, it’s still 60% higher than it was in just 2015. This was the biggest premium paid in any Canadian real estate market. 

Vancouver Condo Owners Pay A 56% Premium To Own

Greater Vancouver real estate is more expensive than Toronto, but closer to renting. Condo apartment owners are paying 54.38% more to own than rent in 2020. That’s down from the peak of 84.12% in 2018, but pretty close to the 53% in 2016 – a decade low. Like I said, it was closer than Toronto. It’s still elevated in contrast to other major cities, especially outside of Canada.

Victoria Condo Owners Pay 13% Less To Carry A Mortgage

Victoria real estate is notoriously expensive, but paying a mortgage is still cheaper. The cost of carrying a condo apartment was 13.35% lower than renting in a purpose built in 2020. As recent as 2015, it was 27.45% cheaper to carry a condo than rent in a purpose built apartment. Part of this has to do with the average rent being even higher than Toronto or Vancouver. Now that’s something.

Edmonton Condo Owners Pay A 7% Premium

Edmonton real estate has the smallest gap between owning and renting of the major cities data was provided for. The cost of carrying a condo apartment was 7.03% higher than renting a purpose built apartment. This down from a recent peak of 32.49% in 2013, which was considered lofty at the time, during peak oil. However, it gives you some context into how big the gap in places like Toronto and Vancouver are. 

One important note to take away is this doesn’t tell us much about affordability or fundamental value. Rents can be undervalued, or condos can be overvalued if there’s a disconnect. It also doesn’t tell us about the size of downpayment, which is prohibitively large in some regions. It does tell us the relative values in comparison to each other, and what kind of premiums people are paying for a lottery ticket.

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17 Comments

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  • Patrick 2 months ago

    Can you show some calculations on how a premium on ownership over renting is actually worked out? It’s a bit amorphous the way it’s been presented, and I suspect some factors that I wouldn’t include the ownership premium are showing up in the CMHC’s numbers. I myself tried to search for the CMHC articles itself to see if they explained the premium calculations but couldn’t find anything on their site….

    • Mortgage Guy 2 months ago

      The CMHC didn’t include maintenance fees, so yes – there are some factors not showing up in the CMHC’s numbers. The premium would be larger.

      Buyers do this because of the forced savings, and capital appreciation on the total property. That works out better in the short run, but over the long run it’s hard to say if it can really provide the same value at ZIRP. Japan did not.

  • Rob 2 months ago

    Pandemic market exuberance is driven by behavioural and narrative economics not fundamentals.

    John Maynard Keynes : Animal Spirits

    Describes how people arrive at financial decisions, including buying and selling . Also, the psychological and emotional factors that drive investors to take action when faced with high levels of uncertainty

    Robert J Shiller : Narrative Economics

    Collective economic behaviour not driven by fundamentals.

    Pretty interesting reading
    Explains a lot about what we’re seeing in today’s financial and housing markets

    .

    • Me 2 months ago

      This is what I was thinking, but I dont really know about the theorys.

      Thank you for your sharing.

  • Jdndn 2 months ago

    As we transition to a 3rd world country, these ratios should naturalMy increase as the underclass grows. India’s ratio is massive.

    Even in normal societies there should always be a premium to own. That is totally normally. Especially in big cities.

  • Bob Walter 2 months ago

    If you look back at recent recessions / down times, even in the worst of times you have to find people that say “Oh we’re in a horrible recession, things have never looked so bleak, better be fiscally responsible”

    It is most likely “We’re in a soft patch now, but things are already looking up, sales are up, now is a good time to buy! We had a shrinkage (-5% GDP or something) but that was just because uncle bob left the faucet open, he promised never to do it again”

    Ergo I have never seen a recession narrative. But maybe that could just be me.

  • Brian 2 months ago

    I am very confused by what this article is saying. I am in the market for an overpriced GTA condo. I could a) Pay 2100$ in rent or b) Pay $2800 in mortgage, condo fees, utilities, property tax etc with 30k (5%) down. Of that 2800$ only 1500$ is expenses the rest pays off the principal payment. Those numbers claiming rent is 86% less premium like huh???. In 4 years I would have paid back my 30k deposit and unlike renting have paid off 60k of my apartment. This article makes zero sense to me what on earth is it saying?

    • Bob Walter 2 months ago

      I think this article is just trying to focus on the disconnect between rent and real estate values which historically and on the long term should follow eachother.

      I interpret its main point as historically rents and real estate values must be in sync.
      With the numbers as they are, rents must either go way up to support real estate values. OR real estate values must come down in order to reflect rental values.

      There can be a time of divergence, but in a market these must always converge (supply and demand)

      It’s on market dynamics, not so much that one condo that you found. If it looks like a good deal to you you should definitely buy it.

      Thing is on market dynamics, condo’s in big cities seem to have fallen out of favour, and near term trends do not seem favourable. Less demand from immigration and more jobs moving out of city core. So this means its more likely for Condo prices to have to come further down (thus if you paid 5% in downpayment, the near term your risk of being “under water” increases)

  • STEPHANIE ST GERMAIN 2 months ago

    At the end of 5 or 10 years, etc. if you own and sell you make money…if you rent, every year your rent just goes up and you’ve just made whoever you’ve paid rent to richer…

    • Mortgage Guy 2 months ago

      That’s not true. There’s two distinct types of renters in big cities, people that don’t have enough to buy, and people that don’t want to tie up capital.

      If you invested the 87% difference, US markets would have greatly outperformed Toronto real estate over the past few years. People are focused on what they know, not the alternatives.

      There are non-financial benefits to owning real estate. Peace of mind counts for something. People just need to stop saying it’s a better financial decision, because that’s not always the case.

    • Bob Walter 2 months ago

      Your statement of “If you own you always make money when selling, and renting is throwing money away” as a generality is false.

      I recommend searching for “Rent vs Buy calculator” and punching in your individual numbers. For some people that plan to move within 5 years, it would make less sense to Buy than to Rent considering often forgotten cost such as realtor commissions and the like.

      Canadians seem to have that “Buying is always better” indoctrinated in their thinking. Talking to banks or your realtor, yes they want to give you as much money as possible and the realtor task is to sell you a most expensive house. The only person looking out for you, is you. So do your research and go with the facts!

  • Bob 2 months ago

    These articles never take into account principle. With rates around 2% about 60% of your mortgage payment pays down principle.

    • Whiskey Foxtrot 2 months ago

      They also don’t take into account maintenance fees and taxes, with rates around 2%, still returns less than US equity markets before leverage.

  • Nata 2 months ago

    I wonder if this analysis is accurate in terms of comparison. Most of the purpose built rentals are quite old buildings with no AC, minimum appliances etc. I would not compare a condo to such rental unit without some sort of adjustment for quality…

    • Whiskey Foxtrot 2 months ago

      I live in a purpose built rental, and it’s no different from a new condo other than it’s much bigger than usual for condos. The majority of condos are actually dumps with high maintenance fees, which don’t look like they’re included in the mortgage.

  • Nata 2 months ago

    Yes, there are some newer rentals. But most of them are outdated and are located in very old buildings.

    • Common 2 months ago

      I would take an old building over one that was built in the last 10 years – the maintenance costs on those new condos don’t go any where but up.

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