May 4, 2023

The Canadian Housing Market

Renting vs Buying a Home

Overview of the Current Housing Market

It has become more difficult to purchase a home in the last year. Mortgage rates have been on the rise all over North America as interest rates rise in an effort to combat inflation, and those with fixed-rate mortgages don’t want to give up their comparably lower rates, leading to low inventory supplies. This low inventory has also contributed to the costs of homes hitting record highs as the demand is higher than the supply.

For those looking to rent rather than buy, rent prices have also increased due to the rise in the cost of living, which is making renting almost as expensive as owning a home.

This article will compare the pros and cons of renting vs. buying a home.

Demographics & Income Levels of Homeowners vs. Renters

In the United States, 65 percent of those under 35 years old are renters. On the other end, 79.3 of those over 65 are homeowners. The average homebuyer is 47 years old, whereas the average age of renters is 38. Looking at previous trends, young adult homeownership dropped by 10 percent between 1960 to 2017, which reflects the increased shift to renting.

In terms of income, $30,000 in annual income separates renters and buyers. The median income for homeowners in the US is around $72,000, whereas, for renters, this income is around $40,000. For renters, around 30 percent of their total income goes towards housing costs, whereas only 16 percent of homeowners’ income goes towards their costs.

Differences by Cities & Locations

Typically, urban areas have higher rates of renting due to the housing makeup in those areas. Not surprisingly, areas such as California and New York are highly occupied by renters, coming in at 45 percent and 47 percent respectively. More rural states, such as Idaho, have higher percentages of homeownership, at 72 percent. Overall, Canada and the USA are both very similar in that each country has an overall homeowner rate of 66.5 percent and 65.5 percent, respectively.

The Pros and Cons of Renting

Flexibility & Location Advantages

Two of the greatest advantages to renting are the flexibility to move freely and the increased accessibility to different locations. To start, renting allows individuals to move much more frequently and without many consequences. Typically, lease agreements are one year, which gives renters the choice to pick up and change locations or stay in a location that they enjoy. This also makes it easier for those expanding families to increase their space as needed, or, alternatively, to decrease their space to save some more money.

Renters are often at an advantage when choosing locations. Typically, in larger cities, apartments, rental condos, and townhouses are closer to downtown cores, which makes the location ideal for those who cannot afford to purchase homes in bigger cities or those who work downtown. These locations may also include many amenities, such as pools or fitness centers.

Financial Considerations

Renting has had a negative association that it’s a waste of money because you aren’t building equity as you would as an owner. However, many other financial considerations could offset this minor shortcoming. To start, there is no requirement for renters to pay maintenance costs or foot repair bills unless they’re at fault. Landlords and property owners are responsible for such costs, which is a huge advantage for renters.

Another big advantage of renting is that there are no down payments. While first and last month’s rent or a security deposit is typically required before moving in, this is usually equal to one month of rent, so it’s not as nearly as expensive as a down payment on a house.

The last major financial incentive for renting is fixed monthly costs and lower variable costs. For renters, that means that they can expect their monthly bills to be consistent every month. This is also true for utility costs, as apartments/condos are less costly to heat as they are usually designed to be more compact and efficient. Additionally, rental insurance is considerably cheaper, at an average of $179 per year – compared to homeowner insurance at $1,249 per year.

Instability, Lack of Control & Landlord Implications

One of the biggest disadvantages of renting is the instability that comes with living on someone else’s property temporarily. If the property owner wants to sell their property or doesn’t want to rent anymore, it could leave the tenant in a tough situation. The tenant also is usually confined to very specific rules and regulations which, if they don’t comply, could result in an eviction. This lack of control can include pet policies, limited decor options, quiet hours, and more. Though rentals are seen as a short-term option, many individuals end up renting for most of their lives. The lack of customizability and freedom within the rental unit can be a huge deterrent.

There is also a risk that landlords increase rent every year, which could turn a renter’s dream home into a financial nightmare. There are many regulations in countries that try to protect renters, which can include rent controls and affordable housing policies. However, not every state or province has these in place. For example, landlords in British Columbia can only increase rent by 2.9 percent per year, whereas in Texas no cap exists and renters in Austin saw an increase in rent by 40 percent. This can result in renters being forced to move as their homes become unaffordable. In the US, renter incomes only grew by 0.5 percent, while rental prices increased by 13 percent.

The Pros and Cons of Buying

Building Equity & Long-Term Investment Strategy

One of the greatest advantages of homeownership is the opportunity to build equity. Home equity is the difference between the market value of the home and how much is owed on the mortgage. Typically, equity increases as you pay down the mortgage – if the value of the home doesn’t decrease from the original price. It can take a long time to build equity, which is why homes are considered to be long-term investments. The median home price in the US increased by 16 percent between 2014 and 2020 – which increased owners’ return on investments significantly.

Owning a home is considered an investment, as the money you put into it essentially grows and gives you more money when you sell. Compared to renting, where your money is going to pay off the landlord’s expenses, a mortgage payment increases your wealth. Homes are considered to be a very safe investment as they have a high tangible asset value and almost always increase in value over the long term. Even if the home’s cost is relatively low, it gives individuals a low-risk, highly valuable investment. Though this investment could take more than a decade to produce value, it’s a great way for individuals to invest in themselves.

Greater Independence & Comfort

No doubt owning a home brings more stability, security, and comfort to individuals. Owning a single-family home, especially, means that you’re able to enjoy the privacy that you don’t necessarily get when renting. You also don’t have to follow anyone else’s rules or policies and are subjected to the noises of your neighbours.

Homeowners are also able to increase the value of their homes through home improvements, which ultimately increase the owner’s comfort. Home improvements could be as minimal as painting or as drastic as installing a deck. This flexibility and independence are unlike what you get if you were renting. Being able to make the place you live your home is an important part of comfort and owning that home makes this process easier. That said, some buildings, such as condos, place restrictions on owners around what they can do with their units and the types of renovations they can make.

High Associated Costs

High upfront costs are some of the largest roadblocks to homeownership. With homeowning, a typical down payment could cost 20 percent of the home’s cost. The average cost of a home in the US is around $410,000, which could require a 20 percent down payment of around $80,000. There are typically closing costs, which could add 2 – 5 percent of the home’s price to the cost. Using the same example as above, this could add another $8,200 – $20,500 in costs for new homeowners.

Property taxes, utilities, and other monthly costs such as insurance and homeowners’ association fees should all be considered when budgeting for a home. Average property taxes in the US can cost $3,370 per year, on top of average annual utility costs of $4,158.

Another significant cost is unexpected maintenance and repair costs. While landlords are responsible for rental properties, owners must make repairs themselves. Annual maintenance costs in the US are around $2,913, but it can ultimately depend on what work needs to be done. Roof repairs, water damage, plumbing, HVAC, and foundation issues are all common causes of maintenance and repairs. Roofs and foundation issues can cost up to $10,000 alone, which is a significant financial burden for owners. All of these costs can make homeowning inaccessible for those with minimal savings, or who don’t have a high enough income to cover these added costs.

Conclusion

There are many benefits to both renting and owning a home. One offers great flexibility and, when viewed holistically, can be more affordable for some people. On the other hand, owning a home gives individuals a greater sense of security and comfort, while also being a very safe and secure investment. Overall, which is the best choice depends on the lifestyle of the individual, their income and ability to pay, and how much they value certain aspects of home life.

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Is Canada Really in a Recession?

December 23, 2023

Context A CBC News article discussed the possibility of the Canadian economy heading into a recession, or whether the country has already passed that threshold. The article discussed this possibility based on slowed growth, high inflation, and the Bank of Canada’s continued interest rate hikes. Analysis A recession is a significant reduction in economic activity that occurs over a length of time, usually months or years. One of the most accepted definitions of a recession comes from the economist Julius Shiskin in 1974, who identified the threshold to an economic recession as two consecutive quarters of declining GDP, although economists often argue about the comprehensiveness of this measure. The causes of a recession can be quite complicated and have many contributing factors. Some common examples include a sudden economic shock such as the recent COVID-19 pandemic, excessive debt, asset bubbles, inflation, deflation, or large technological changes. One major factor influencing the probability of an economic recession includes rising interest rates from the Bank of Canada, which has implemented the highest hike in the shortest amount of time in all of the bank’s history, raising the rate over eight times since 2022. The Bank of Canada increased interest rates in order to curb inflation since rising interest rates discourage taking on debt and spending. This further encourages companies to lower prices or slow inflation to increase demand. Currently, the Bank of Canada is keeping at the 5.0 percent rate but has said that further hikes are not off the table as inflation may continue to exceed acceptable rates. Increases in interest rates can certainly contribute to or precede a recession. In fact, the Bank of Canada has raised interest rates three times to slow inflation since the 1960s and all three times this action led to an economic recession. Current fears of a looming economic depression are also not unique to Canada, as following the COVID-19 pandemic, the global inflation rate increased to 8.73 percent in 2021. This was due to supply chain issues, as well as the effect of the Russia-Ukraine War creating rising food and energy prices, as well as general fiscal instability. A majority of the World Economic Forum’s lead economists agreed earlier this year that we could see the beginning of a global recession starting in 2023, which would certainly affect the Canadian economy. The article also discusses the Canadian economy’s slowed economic growth, as the GDP has stagnated in the second quarter of this year. However, it suggests other factors may explain the decrease, including striking port workers in British Columbia, and the resulting negative effect on economic activity. An RBC report mentions how on a per-person GDP basis, there has already been a decline for four straight quarters despite a surge in population growth, and concludes overall predictions for GDP growth do not look promising despite local factors including Canadian wildfires and strikes. They also point to a 0.5 percent increase in the unemployment rate over the past few months, which has historically tended to indicate a looming recession.

Ottawa Mayor and Lansdowne Park

December 21, 2023

Context The City of Ottawa Mayor, Mark Sutcliff released a statement about a revised plan for the redevelopment of Lansdowne, an urban public park containing historic landmarks and commercial venues. The project includes the demolition of a sports arena complex, stadium stands, and the building of a new event center, residential units, and retail space. Despite suggesting the new plan has addressed the concerns of residents, many issues remain. Analysis The City of Ottawa and the Ottawa Sports and Entertainment Group (OSEG) have been in partnership to develop Lansdowne since 2012 and finished an original redevelopment of the park back in 2014. A few years later in 2019, the financial sustainability of the park came to the city council’s attention, and in 2020 the partnership was extended another 10 years with direction to develop a new plan to revitalize Lansdowne. Consultation with community members started in 2020, with the original concept released last year in 2022, and a revised version released this month. Community feedback was acquired through various platforms including public information sessions, an open email for feedback, and public surveys. A summary report of that feedback was published on October 6th, which highlighted the six most common themes of community residents’ concerns. The first concern was related to the size and number of the multiple high-rise apartments which were designed to exceed 30 floors. In the new plan , they have removed one of the three planned buildings, with fewer total units in each, and only one tower with the potential to be built at 40 stories. Residents were also concerned about the loss of greenspace due to the new event center construction. Many people suggested they wanted that greenspace allocated elsewhere, or alternatively, an accessible greenspace roof on the event center. Although in the original plan the city had conceptualized a greenspace rooftop on the event center, this was scrapped in the new plan as it was deemed too expensive to maintain. Respondents wanted a restriction of vehicles to the premises to promote pedestrian safety, a concern that has existed since Lansdowne was first renovated back in 2014. They also wanted more public transportation infrastructure to and from the park, whether that is the local city buses, trains, or cycling infrastructure to reduce congestion on connecting roads. Relatedly, residents also desired more accessible public use space from washrooms to water fountains to usable and free space for people to occupy. The new plan has reduced the number of parking spaces for the residential buildings to meet the Bylaw limit of 0.4 spaces per unit, down from 739 to 336 spaces, while they added 36 new spaces for the event center. In terms of accessible public space, the new plan includes 27,000 square feet of space originally earmarked for the third residential building, now available for an unspecified “public realm.” Residents also wanted more local and less corporate or big-box businesses, to reflect the unique local community better. The new plan does suggest the amount of retail space has been reduced from 108,000 square feet to 49,000 square feet but does not directly address the desire to attract smaller, local businesses. Finally, there was also a concern about financial transparency of how the project is being funded and the resulting impact on the City. The Federation of Citizens Association (FCA) which represents over 70 community groups voted unanimously to oppose the new plan, which comes with a very costly price tag of $419 million, increased from $332 million of the first plan. They cite that the debt comes at a time when the transit system is facing major issues, and the city is struggling with a housing affordability crisis.

Danielle Smith - Conflict of Interest

December 20, 2023

Context Newly elected Premier of Alberta Danielle Smith has defended her cabinet which is coming under fire over conflict-of-interest concerns. Environment and Protected Areas Minister Rebecca Schulz’s husband, Cole Schulz , may be lobbying the government in the areas that the Minister works in. Cole Schulz's firm is working on removing the protection of a threatened caribou range to make room for the oil and gas industry – which has raised concerns over who has Minister Schulz’s ear. Analysis The company that Cole Schulz is a partner with, Garrison Strategies, was hired by the Explorers and Producers Association of Canada and is working to influence the government on the issuing of reclamation certificates for oil and gas sites. The lobbyists are working to gain more access to protected caribou habitats to expand the oil and gas industry. They are hoping to “ address the moratorium on tenure in caribou regions ” which would effectively give them better access to land and investments. The Little Smoky and A La Peche herds in northwest Alberta were protected by a moratorium in 2013 which stopped the granting of new energy leases in this area. At the time, 95 percent of the herd’s range was heavily damaged. Phillip Meintzer of the Alberta Wilderness Association found that though records show that Garrison didn’t contact Environment and Protected Areas directly, the firm’s causes are “ too close for comfort ”. Meintzer also notes that as Garrison works on opening the protected caribou land for Alberta Energy, Environment and Protected Areas should be working on a protection plan for the federally and provincially designated threatened animal . Minister Schulz is working closely with the ethics commissioner, however, Danielle Smith confirmed that “ the ethics commissioner has looked at it, given guidance and there’s no violation [of the Conflicts of Interest Act]”. Cole Schulz also indicated that his firm wasn’t aware that Minister Schulz breached the Act at any time. Meintzer suggests that this situation “ calls for a further look ” from a third party. Sources https://globalnews.ca/news/9988998/alberta-premier-danielle-smith-rebecca-schulz/