Housing Policy Doesn’t Have to Mean Home Ownership Policy

Last year, I read an article in the Globe and Mail focused on Canadians’ fixation on the personal goal of homeownership. While the goal of home ownership might be worthwhile for many Canadians it does not need to be the goal for all Canadians. A home to live in is essential to your health and well-being but a mortgage or a deed in your name is not.

As the price of real estate continues to increase it grows more and more beyond the reach of many Canadian households. The economic impact of the coronavirus health crisis and increased warnings that real estate prices in Canada are in an increasingly fragile bubble make homeownership for Canadians even more difficult and inadvisable. And let’s keep in mind that close to one-third of Canadians (32%) are tenants. So by setting homeownership as the holy grail of financial stability we are condemning a lot of our neighbours.

I am pretty sure that I am going to get a lot of criticism for saying this. But I’m not the only one saying it. Marcus Gee makes the same argument in his October 10^th article in the Globe and Mail, “It’s time to rethink our fixation on home ownership”. And in that article, he quoted from a speech made by Evan Siddall, President and Chief Executive Officer of Canada Mortgage and Housing Corporation last December.

The CMHC is responsible for making sure the Canadian housing market is stable and affordable. They understand the crucial housing plays in the Canadian economy and in Canadians’ individual well-being.

In a speech titled Affordable Housing for Everyone in Canada Mr. Siddall called out the “glorification of home ownership”. Siddall points to the primary goal of CMHC – “(b)y 2030, everyone in Canada will have a home that they can afford and that meets their needs.”

But, as he points out, this does not mean everyone needs to own their home, or some small portion of their home i.e. hold a mortgage. It just means Canadians need a safe and healthy place to live and raise their family.

Ever escalating house prices continue to make homeownership unattainable for many Canadians, especially among the 80% of Canadians who are city dwellers.

Real estate prices in Canada continue to rise.  COVID has accelerated that trend. While this might suggest that owning a home is an effective investment, it does not support the idea that homeownership fosters personal goals of shelter and financial security.

Canadians need to understand that being a tenant is not a financial failure. As long as you use the money you might have invested in your property pursuing other financial targets then you could quite arguably improve your overall financial well-being.

There is a reason economists came up with the term “house poor”. According to Investopedia  “House poor is a term used to describe a person who spends a large proportion of his or her total income on homeownership, including mortgage payments, property taxes, maintenance, and utilities.”

One of the first rules of personal financial planning is that you shouldn’t put all your eggs in one basket. Your goal should be diversification. When you use all or at least a lot of your financial resources to cover your mortgage and housing costs you are breaking that rule.

People will tell you not to throw your money away on rent. But in his book, The Wealthy Renter, Alex Avery points out that many of the costs of home ownership are also “thrown away”. Those costs include things like interest payments, maintenance and overhead, property tax. They are the cost of having a place to live.

Not to mention the opportunity costs related to investments that could have been made with down payments and associated increased housing costs elsewhere.

While Canada was able to escape the housing bubble that devastated the American economy in 2008 that does not mean that such a reality may not catch up to us sometime soon. In fact, CMHC is predicting the very real possibility of such a collapse sometime in 2022.

And when an economic downturn that includes a fall in real estate values hits, people who consider themselves well off because of the value in their home could find out that they can be in some degree of trouble. When you have not placed a significant portion of your overall wealth into your home then you should have greater liquidity to assist in times of trouble.

I am reminded of the analogy that people who invest heavily in their employer’s stock, are in double jeopardy when the stock tanks and staff are let go.

We have all witnessed the economic uncertainty that has accompanied our current health crisis. We have also seen how people are thinking about fleeing the city for the suburbs and the countryside. People are selling their homes and condos downtown and seeking the vast vistas of the outer regions. But you don’t need to be a homeowner to be afflicted by this dream. And as a renter or tenant, you can accomplish the goal of picking up and moving on much more easily than your home-owning neighbour.

And how about seizing the opportunity to pursue a new job or career clear across the country.

Let’s make something very clear here. I don’t want to suggest that homeownership is a bad idea. I just want to make it clear that homeownership is not the only way to go and that there are pitfalls related to homeownership that are often not discussed or compared to staying on as a renter.

You can be successful and build a financial future without being a homeowner. You might have to justify yourself to your uncle every time you see him at family get-togethers, but you need to know that what you are doing is perfectly valid.

Canada is a country of cities such as Montreal. 80% of Canadians live in these urban centres.