Nearly one-third of Canadians now live in rental accommodations, with the trend increasing as housing affordability remains a challenge. According to a recent Royal LePage survey, 27 per cent of current renters plan to purchase a property within the next two years, a figure that rises to 40 per cent among those aged 18-34. However, 69 per cent of renters have no immediate plans to buy, with over half citing insufficient income to afford a property where they wish to live.
“The rental sector is not immune to the significant affordability challenges stemming from Canada’s acute housing shortage,” says Phil Soper, president and CEO of Royal LePage. “High mortgage rates have made it difficult for many to purchase a home, forcing some to move into or remain longer than planned in the rental market.”
Soper also cites the low availability of rental properties in many major markets, despite the short-lived price drops and rental unit demand during the COVID-19 pandemic.
Over one-third of renters need to look 50+ km away to afford a property purchase
Of those renters planning to buy within two years, half expect to have a down payment of less than 20 per cent, while 26 per cent plan to put down 20 per cent and 15 per cent will have more than 20 per cent. Many will use savings, the First Home Savings Account (FHSA) or RRSPs through the Home Buyer’s Plan (HBP). Additionally, 25 per cent expect to receive financial gifts or inheritances.
44 per cent of renters aiming to buy believe they can afford a home in their current city, but 37 per cent don’t. Among the latter, 40 per cent anticipate needing to look more than 50 kilometres away to find an affordable property.
According to the Royal LePage 2024 Most Affordable Canadian Cities Report, half of residents in Toronto, Montreal and Vancouver would consider relocating for more affordable housing if they could find a job or work remotely. This consideration is higher among renters (60 per cent) compared to homeowners (45 per cent).
“We know that Canadians widely consider homeownership a worthwhile long-term investment and a quintessential part of the Canadian dream. So much so, that many are willing to relocate in order to make their home ownership dreams a reality. This is especially true for young Canadians and those who have remote work flexibility. I believe we will continue to see migration from southern Ontario and high-priced regions in B.C. to more affordable markets across the country in the future,” says Soper.
Falling interest rates create ‘a double-edged sword’
29 per cent of renters considered buying a property before signing or renewing their current lease, but 41 per cent lacked a sufficient down payment.
“While a third of Canadian adults are currently renting, and there are families who are perfectly content doing so, the desire for home ownership remains strong among a large portion of this segment of the population. Our latest research reveals that a material number of renters wish to transition to home ownership. Understandably, the greatest barrier to entry is the ability to drum up the initial capital for a down payment,” continues Soper.
When asked why they continue to rent, about one-third of respondents cited waiting for lower interest rates (33 per cent) and property prices (30 per cent). 22 per cent are saving for a down payment, and 20 per cent did not qualify for a mortgage.
“Earlier this month, the Bank of Canada announced its first rate cut in more than four years. Falling borrowing costs will lower the threshold to qualify for a mortgage, helping renters become owners. However, this creates a double-edged sword. Increased competition as they enter the market will put additional pressure on property values. While some will wait for home prices to become more reasonable, Canada’s housing shortage will leave them waiting indefinitely,” adds Soper.
‘The housing industry and government must collaborate on innovative solutions to increase inventory’
Nearly 40 per cent of Canadian renters spend up to 30 per cent of their net income on rent, with about the same amount spending between 31 per cent and 50 per cent. In high-cost markets like Vancouver and Toronto, 27 per cent and 19 per cent of renters, respectively, spend more than half their income on rent, compared to 10 per cent in Montreal.
The Canadian Mortgage and Housing Corporation (CMHC) reported that the average rent for a two-bedroom unit increased by 8 per cent year-over-year in October 2023, with vacancy rates at 1.5 per cent for purpose-built rentals and 0.9 per cent for condominium apartments.
“From coast to coast, Canadians are struggling with housing affordability in the wake of one of the most aggressive interest rate hike campaigns in history. Across many regions, rental demand vastly exceeds supply, making affordable housing a challenge. The housing industry and government must collaborate on innovative solutions to increase inventory, including rentals, and support those most impacted by these escalating market conditions,” concludes Soper.
The 2024 federal budget, released on April 16, includes measures to protect tenants and aid their path to home ownership. Highlights include the Canadian Renters’ Bill of Rights, proposing a standardized lease agreement, rental price history disclosure and — what the report cites as perhaps most intriguing — allowing tenants to report rental payments to credit bureaus to improve credit scores and mortgage applications.
