Buy vs rent debate for young Canadians.Deborah Baic/The Globe and Mail
Last week's blog post in which I discussed the benefits I have experienced since becoming a renter generated quite a bit of email. Surprisingly, most of them were from people who were thankful. It seems that many Canadians feel some shame in being renters, that they haven't made it as successful financial adults until they own a home.
Certainly, I understand that there is pride in home ownership. But because I'm a renter does not mean I'm against people owning homes. I'm rather dispassionate about it, actually. It's really about the numbers for your own situation and what degree of comfort you have with your own long-term assumptions.
But for those who think you should own a home simply, or primarily because it's a sign of achievement, let's challenge that assumption.
Canada's 2011 home ownership rate, as reported in the latest National Household Survey, is just a tick under 70 per cent. It's been a long-term upward trend. How does that compare to other countries around the world? According to a survey by the Pew Research Center, Switzerland's home ownership rate is on the low side, at 43.8 per cent. And the country cited as the economic engine of the European Union, Germany, has a rate of 53.4 per cent.
On the flipside, the countries at the heart of the Eurozone debt crisis, Portugal, Italy, Greece, and Spain, range from 72.9 per cent to 82.7 per cent. Romania, Lithuania, and Croatia, not the typical poster children for wealthy countries around the world, all check in at over 92 per cent. You can see a selected list of other countries' home ownership rates here. What's notable about this list is that there are also countries with strong economies that exhibit high ownership rates. Strong economies with lower home ownership rates would suggest that a high rate is not a requirement for economic strength.
One other benefit of renting is the mobility of workers. In other words, you are less likely to relocate to another city or province for a job if your roots are stronger. Certainly owning a home would qualify as a stronger root than renting. In a recent research paper, Does High Home-Ownership Impair the Labor Market?, Professors David Blanchflower of Dartmouth College and Andrew Oswald of the University of Warwick found that rises in home-ownership rates in U.S. states were correlated to significant increases in the unemployment rates, as well as longer commute times. Their research "suggests that high home-ownership may gradually interfere with the efficient functioning of a labor market."
With many Canadians approaching retirement with little savings, but substantial home equity, it's clear that the forced savings effect of a mortgage is a wealth driver. Still, most Canadian homeowners see their houses as homes first, and perhaps as an investment second. On the topic of housing as an investment, Robert Shiller, one of the three joint recipients of the 2013 Nobel Prize in Economics, believes housing price increases can't outstrip inflation in the very long term. It may be hard to reconcile that since we've been in a secular, and spectacular bull run in housing in Canada for decades, but his thoughts are worth noting.
Let me be clear: I'm not suggesting Canadians should sell their houses and rent. I'm promoting looking beyond home ownership simply as a status to strive for. It really comes down to the numbers and assumptions particular to Canadians' own situations.
With little insight into the numbers below the surface, I'm not impressed if you own your house, and I'm not unimpressed if you don't. But if and when renting makes sense, there's nothing to be ashamed of.
Preet Banerjee, a personal finance expert, is the host of Million Dollar Neighbourhood on The Oprah Winfrey Network. You can read his blog at WhereDoesAllMyMoneyGo.com and follow him on Twitter at @preetbanerjee.