One in four Canadian renters plans to buy a home despite financial hurdles, Royal LePage finds

Posted On Jul 03, 2024

More than a quarter of Canadian renters plan to purchase a home within the next two years, driven by a strong desire for homeownership despite significant financial barriers and a highly competitive, supply-constrained market.

According to a recent Royal LePage survey conducted by Hill & Knowlton, 27 per cent of renters in Canada have set their sights on buying a property within the next two years, with this figure rising to 40 per cent among those aged 18 to 34. This younger demographic is particularly eager to transition from renting to owning, reflecting a broader aspiration for financial stability and long-term investment through real estate.

However, not all renters share this optimism. Among those who expect to continue renting, a majority cite insufficient income as the greatest hurdle to homeownership. Specifically, 54 per cent of renters who do not plan to buy a home in the next two years believe their income will not be sufficient to afford a property that meets their needs. This sentiment is even stronger among younger renters, with 61 per cent of those aged 18 to 34 expressing similar concerns.

The financial strain on renters is further highlighted by the fact that 29 per cent of them considered buying a property before signing or renewing their lease. Of these would-be buyers, 41 per cent were unable to proceed due to an insufficient down payment.

“The rental sector is not immune to the significant affordability challenges stemming from Canada’s acute housing shortage. 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,” Phil Soper, president and chief executive officer of Royal LePage, said in the report. 

The situation is particularly acute in British Columbia, where 25 per cent of renters spend more than half of their net income on monthly rental costs, significantly higher than the national average of 16 per cent. This high cost of living exacerbates the difficulties renters face in accumulating savings for a down payment.

According to Soper, the Canadian rental market is characterized by tight competition and limited supply, factors that have contributed to rising rental costs and have made it increasingly difficult for renters to save for homeownership.

“Despite a short-lived decline in prices and demand for rental units during the height of the COVID-19 pandemic, the available supply of rental properties in most major markets remains ultra low,” Soper said.

Still, the desire for homeownership remains strong among Canadian renters. The aspiration to own a home is driven by various factors, including stability and the potential financial benefits associated with owning property, yet the barriers to entry remain significant obstacles for many.

When queried about the reasons for choosing to rent instead of buying, 33 per cent of respondents cited waiting for interest rates to decline, while 30 per cent said they are waiting for property prices to drop. Twenty-two per cent indicated they were renting while saving for a down payment, and 20 per cent said they did not qualify for a mortgage.

Soper suggests that adopting a “wait-and-see” approach may not be the most effective strategy.

“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,” Soper said.

Source:

Campbell, S. (June, 20, 2024). 1 in 4 Canadian renters plans to buy despite financial hurdles | financial post. Financial Post. https://financialpost.com/real-estate/canadian-renters-plan-buy-home-financial-hurdles