What is funny is that a large number of people who have their name on a deed to property, are co-owners of that property. Aside from a partner, friend(s), family member(s), even if they are on title themselves, oftentimes, they co-own with a lender or private investor. We don’t typically hear people say “TD and I, we own the joint”. In our estimation, this is because people take pride in their real estate, have a confidence in being able to sustain their monthly debt-servicing obligations, and thus do not mention their hidden real estate partner-in-crime.
So, since a lot of people cannot do the home ownership thing alone, why does there seem to be a renters stigma?
Do people wrongly attribute home ownership with personal success? Is this THE measure of success? Likely not. It may be one to some, having worked up sufficient savings in order to achieve such a purchase. After all, it is an achievement and we are certainly not belittling that fact. However, even though homeownership may be a gauge in some eyes as to how successful one is, it certainly does not put the tech genius who is renting his parents’ basement to come up with the latest app in any lesser of a rank – or in our opinion it shouldn’t. We know so many entrepreneurs who were able to become successful in their businesses with the help of others, oftentimes with help in the housing affordability department.
When you think that the Canada Mortgage and Housing Corporation suggests “affordable housing” is spending no more than 30% of your before tax income – isn’t 30% still a good chunk of the pie? In some real estate markets, this is not achievable alone, even as a “petty” renter. Hilariously though, with this stigma comes the actual fact that sometimes renters are paying larger chunks of their pie to their housing needs.
In Toronto, according to a 2016 Census, the average income per household was approximately $66,000. On a per-household basis, this number seems low but it is reflective of the high number of single person households. Appreciate that at the rate of inflation to get a rough figure for 2019, and we sit at, let’s say, $70,000. Follow this hypothetical Toronto scenario:
Average MLS house price (June 2019): $832,000
Average annual property taxes (estimate 1% of value): $8,320
Average monthly utilities only: $300
Stress-tested maximum loan that would be granted with the above income: $177,000
**Stress-tested maximum loan calculated using Dominion Lending’s My Mortgage Toolbox App.**
So yes, a buyer has to have a hefty chunk of their own cash, and can damn well call it a great feat to be a homeowner! In this scenario, if the average buyer wanted to purchase the average house price in Toronto, the following would play out (bear with us, we realize that some aspects are unlikely/unrealistic) – Mr. Buyer earns $70,000 per year, has $655,000 down (from a seriously lucrative previous venture), expects their basic monthly home ownership expenditures (taxes, utilities and insurance) to be $1,093.. and finances the purchase at 3%, amortized over 25 years. Their total monthly cost would be $1,931.
Figure someone only has the minimum down payment requirement for the above priced home ($58,200), their monthly costs would be $4,902 (atrociously high for a lot of people’s standards). In order to debt service a large loan like this to fall within the ratios required, annual household income would have to be at least $210,000. Most people in this income bracket would likely have more equity, thus lowering their monthly carrying cost.
Recently, an article came out that stated that the average 1-bedroom rental unit in Toronto costs $2,260 per month. Increase the size of unit and number of bedrooms, increase the dollar amount. This isn’t chump change on a per-month analysis of what a renter covers for their living expenses – it hardly puts them into a category of “poorer, second-class citizens”. In fact, at this rental value, they are spending 38% of the above average household income, more than the homeowner will. Of course, the above scenario exemplifies the extremes stretched to either end of their spectrum. But it does put a renter’s contribution to their living expenses into an interesting light.
**Seeing the above numbers, one can understand why rents must be as high as they seem to be, that and the simple economic principle of supply and demand.**
Do homeowners think that their property values won’t appreciate as quickly when being in a neighbourhood with or beside a rental property? This can be true. Is this what drives part of the stigma? Probably. What may be the solution? Perhaps the ability to hold the tenant more accountable and to a higher standard of expectation and responsibility – via the Residential Tenancies Act. People are people, and sometimes whether they rent or own their home does not make a difference in how they maintain their home. Yet, if risk of eviction was more prevalent, based on the landlord being able to do so (within reasonable grounds), perhaps tenants would have greater incentive to remain good renters. However, landlords currently have certain means of assessing tenants and implementing expectations which can weed out the less-qualified candidates. This stigma towards only the renter is sometimes unfair as, in some cases, it begins with the landlord and what their initiatives with the rental are. Absentee landlords exist, and while those situations can work out positively, they can reflect a sense of neglect, lack of care, etc. unto the tenant, and thus into how they maintain the home. The landlord also has the ability to set an expectation of the rental unit they are handing over by showing how to maintain it and pride of ownership to that point, and being attentive to its upkeep during the tenancy. Like we mentioned, there can be lemons in all categories.
Another interesting consideration, a comment we come across all the time is that people who are looking to buy property seek a home with a legal accessory apartment as a mortgage helper. They either prefer the renter or need the renter. Sometimes, if they didn’t have the renter, their homeownership dream mightn’t be. Unlike the homeowner, the renter may wish for the flexibility of their living arrangements and the ability to test run a neighbourhood, perhaps. Some other advantages and reasons to renting are outlined in our previous blog post, Should I Rent or Buy?
All in all, there are a host of reasons that the rental stigma exists, most of which have some symptoms that are outside of the renter themselves.
Hmmm. Perhaps we should abolish the stigma.