20 Years of Renting vs. Buying a Home in Canada (2005 to 2024)

Key Concepts

Rent vs. Own Analysis: A financial comparison between renting a property and owning a property, considering all associated costs and investment opportunities.
Net Worth: The total value of assets minus liabilities, used as the primary metric for wealth accumulation in the analysis.
Annualized Return: The average yearly rate of return on an investment over a specific period.
Compound Growth: The process of earning returns on both the initial investment and the accumulated returns over time.
Down Payment: The initial amount of money paid by a buyer when purchasing a property.
Closing Costs: Expenses incurred when buying or selling a property, such as legal fees and real estate commissions.
Mortgage Payment: The regular payment made by a borrower to a lender for a mortgage loan.
Property Tax: A tax levied by local governments on the value of real estate.
Maintenance Costs: Expenses associated with repairing and maintaining a property, including condo fees or strata fees.
Investment Portfolio: A collection of financial assets, such as stocks and bonds, held by an investor.
Canadian Equity Index: A benchmark representing the performance of Canadian stocks.
Global Equity Index: A benchmark representing the performance of global stocks.
FHSA (First Home Savings Account): A registered savings plan in Canada designed to help individuals save for their first home.
RRSP (Registered Retirement Savings Plan): A registered savings plan in Canada designed for retirement savings.
TFSA (Tax-Free Savings Account): A registered savings plan in Canada that allows investments to grow tax-free.
Home Price Index (HPI): A measure of changes in the value of residential properties.
Depreciation: The decrease in the value of an asset over time.
Transaction Costs: Costs incurred when buying or selling an asset, such as real estate commissions.
Sensitivity Analysis: An analysis that examines how changes in assumptions affect the outcome of a model.
Financial Literacy: The knowledge and skills to make informed financial decisions.

Rent vs. Own: A Data-Driven Analysis of Canadian Housing Costs

This analysis challenges the persistent myth that owning a home is always financially superior to renting in Canada. By examining 20 years of actual historical data for 12 Canadian cities (ending December 2024), the study reveals that renting has often been a financially comparable, and sometimes superior, choice to owning. The findings suggest that individuals should prioritize their personal preferences over perceived financial pressure to buy.

Historical Context and Data Overview

Canadian housing costs have significantly increased over the past two decades, leading to a widespread belief that buying has been a far superior financial decision compared to renting and investing in stocks. However, this video presents data that contradicts this notion. The analysis focuses on apartment data due to better data quality and availability for the 20-year period.

Key Data Points:

Average 20-year annualized apartment price return (12 cities): 5.11%.
Toronto apartment price appreciation (Jan 2005 - Dec 2024): From $198,300 to $627,000, an annualized return of 5.74%.
Stock market return (30% Canadian equity, 70% global equity index): 8.62% annualized over the same period, turning $198,300 into over $1 million.
Highest annualized apartment price return: Kitchener-Waterloo at 6.99%.
Second highest annualized apartment price return: Vancouver at 6.45%.
Toronto apartment price decline (March 2022 - Dec 2024): 21%.

The data highlights significant dispersion in real estate market performance across Canada and notes that some cities experienced sharp price declines towards the end of the sample period, while stocks remained resilient.

The Rent vs. Own Model Explained

The model simulates two scenarios starting in January 2005:

Renter Scenario: The individual rents an apartment, invests their initial down payment savings in a diversified stock portfolio (30% Canadian equity, 70% global equity with a 0.25% annual fee), and invests the monthly difference between their rent and the owner's total housing costs.
Owner Scenario: The individual buys an apartment with a 20% down payment and a 25-year mortgage at the prevailing interest rate. They cover all associated costs: mortgage payments, property taxes, maintenance (including condo/strata fees), and insurance.

Key Assumptions and Methodologies:

Initial Investment: Assumes the renter has saved enough for a 20% down payment and closing costs.
Mortgage Financing: 20% down payment, 25-year mortgage at prevailing rates, renewed every 5 years.
Cash Flow Management: The renter invests any positive cash flow difference between their housing costs and the owner's costs. If the owner's costs are lower, the renter withdraws from their portfolio.
Rent Increases: Rents increase annually based on historical data for each city, averaging 6.24% per year across the sample.
Stock Portfolio: Composed of 30% Canadian equity and 70% global equity index funds with a 0.25% annual fee.
Maintenance and Depreciation: 1% annual depreciation applied to the home's value, and owners spend 1/3 of the renter's rent payment on maintenance and repairs. This combined assumption of 2.66% is in line with academic research and Statistics Canada data (0.82% for maintenance/repair and 2.48% for renovation spending).
Transaction Costs: 2% at purchase and 6% at sale.
Property Taxes: Based on historical rates for each city.
Tax Treatment: The renter's portfolio is assumed to be tax-sheltered using FHSA, RRSP, and TFSA accounts.

Forced Savings Argument: A significant argument for owning is "forced savings" through mortgage principal repayment. However, the analysis suggests a disciplined renter can achieve comparable wealth accumulation.

Comparative Wealth Outcomes: Full Period Analysis (2005-2024)

Over the entire 20-year period, the results were mixed across the 12 cities:

Seven cities favored renting: Montreal, Ottawa, Winnipeg, Quebec City, Hamilton, Halifax, and surprisingly, Toronto.
Five cities favored owning: Vancouver, Kitchener-Waterloo, Victoria, Calgary, and Edmonton.
Average renter to owner wealth ratio: 1.17 (meaning renters, on average, had 1.17 times the wealth of owners).

City-Specific Outcomes (Full Period):

Toronto: Ending wealth ratio of 1.05. Rents and prices increased significantly, but rental costs were not excessively high relative to ownership costs. Stock portfolio resilience offset real estate price declines after 2022.
Montreal: Ending wealth ratio of 1.48. Low rent growth relative to ownership costs and modest real estate price growth allowed renters to stay ahead.
Vancouver: Ending wealth ratio of 0.71. High price growth and rapidly rising rents made it challenging for renters, though the outcome was not as dire as commonly perceived.
Calgary & Edmonton: Ending wealth ratios of 0.37 and 0.39, respectively. These cities had low price returns for most of the period but a significant early price jump, coupled with high rents relative to ownership costs, led to owners significantly outperforming renters.
Ottawa: Ending wealth ratio of 1.97. Modest price growth and low rents relative to ownership costs favored renters.
Winnipeg: Ending wealth ratio of 2.93. Low price returns and high owner cash flow costs allowed renters to accumulate significantly more wealth.
Quebec City & Hamilton: Ending wealth ratios of 1.14 and 1.12, respectively. Mixed results throughout the period, but renters finished ahead.
Kitchener-Waterloo & Victoria: Ending wealth ratios of 0.71 and 0.85, respectively. Strong price returns allowed owners to stay ahead.
Halifax: Ending wealth ratio of 1.26. Renters ultimately favored.

Comparative Wealth Outcomes: 5-Year Sub-Periods

To account for the fact that most people do not stay in their homes for 20 years, the analysis examined four non-overlapping 5-year sub-periods (2005-2009, 2010-2014, 2015-2019, 2020-2024).

2005-2009: Owning came out ahead in most cities. Renting only fared better in Montreal, Ottawa, Hamilton, and Halifax.
2010-2014: Renting came out ahead in all cities, largely due to low real estate price returns (averaging 2.43% annualized).
2015-2019: Mixed results, with five cities favoring owning.
2020-2024: Renting favored everywhere except Halifax, primarily because real estate prices fell in many cities during this period, while the stock market soared.

Overall Sub-Period Findings: Renting came out ahead in 71% of the 48 5-year sub-periods across all cities.

Supporting Research and Key Arguments

The findings align with previous research:

US Real Estate (2012 paper): Renting beat owning 75% of the time for 8-year holding periods (1978-2009) when renters invested in a matched risk portfolio.
Canadian Real Estate (2007 paper): Renter wealth matched or exceeded owner wealth in seven of nine cities studied (1979-2006) when renters invested in a Canadian index fund.

Key Arguments Presented:

Renting is not "throwing money away": The monthly mortgage payment is not the sole cost of ownership. Property taxes, maintenance, and other fees significantly increase the owner's total housing expense.
Market rents are not set by landlords' costs: Landlords do not simply pass on their cash flow costs plus a profit margin. Market rents are determined by supply and demand, and landlords may incur cash flow shortfalls.
The stock market's performance is crucial: The strong performance of the stock market over the past 20 years has been a significant factor in the financial success of renters who invest their savings.
Owning hedges against rising housing costs: This is a valid financial argument for owning, and it did pay off in the analysis for some cities.
Behavioral factors matter: While the data shows renters have a fair chance at matching owner wealth, actual outcomes depend on disciplined saving and investing, which can be challenging for many.

Sensitivity Analysis and Nuances

The analysis explored how changes in key assumptions affect the outcomes:

Higher Investment Fees (1% vs. 0.25%): If investment fees were set to 1% (typical for actively managed funds), the average renter to owner wealth ratio dropped to 1.02.
Lower Savings Discipline (80% vs. 100% of cash flow difference): If renters saved only 80% of the cash flow difference, the average wealth ratio dropped to 0.93.

These sensitivities suggest that for individuals with lower financial literacy, who invest in high-fee funds, or lack saving discipline, owning a home might indeed be a more practical and financially sound decision. The tax advantages of a primary residence for Canadians who have maxed out their registered accounts are also a significant factor favoring ownership.

Conclusion and Takeaways

The study demonstrates that the financial superiority of owning a home over renting and investing is not a clear-cut certainty in Canada. While owning offers a hedge against rising housing costs and can be a form of forced savings, a disciplined renter who invests consistently in low-cost diversified portfolios can achieve comparable, and often superior, wealth accumulation.

The decision to rent or own should be based on individual circumstances, preferences, and financial discipline, rather than a generalized belief in the financial supremacy of homeownership. For those who struggle with saving and investing discipline, buying a home may be a more straightforward path to wealth building. However, for individuals confident in their ability to manage their finances, renting presents a viable and often financially advantageous alternative.

The video concludes by offering the services of PWL Capital financial planners for those struggling with the rent vs. own decision.