There’s a lifestyle penalty for renting in Canada — it doesn’t have to be so – Global News
When Juliane Lorenz and her husband started renting a bungalow in Etobicoke, just west of Toronto, after their first child was born, she did not think much of it. Renting is the norm in her native Germany, where the homeownership rate is less than 50 per cent.
Others, though, were puzzled by Lorenz’s choice. Was the family ever going to buy a home?
“Even the way people talk about it here — saying ‘oh, are you just renting?’ — implies so much,” she said. “It’s always seen as a step down.”
Lorenz, who married a Canadian, has a degree in architecture and wrote her dissertation on Toronto’s urban sprawl. So she wasn’t entirely unaware of Canadians’ cultural prejudice against renting. But she never expected that the experience itself would be so much worse than renting in Germany.
READ MORE: Rent or buy? How stagnating home prices and high rents affect that equation
Lorenz has had issues with the maintenance and upkeep of the property her family rents. But the final blow came a few weeks ago, when the couple received a 60-day notice that they’d have to vacate the property — after seven years of renting.
The family will be moving out in July and heading to Germany, Lorenz said.
WATCH: Renting vs. owning
Why can’t renting be as good as owning in Canada?
With more and more young families shut out of the housing market in cities like Vancouver and Toronto, more Canadians are entertaining the idea of being lifelong renters. Arguments in favour of renting have gained a spotlight in the public debate in recent years, most notably with Alex Avery’s popular book, The Wealthy Renter.
Proponents of perpetual renting make a simple point: with rent usually a lot cheaper than the carrying cost of owning a comparable home, you can build wealth by investing the difference in the stock market.
READ MORE: Buying vs. renting in Vancouver — moneywise, it doesn’t make much difference: analysis
But the mathematical argument for renting leaves out the lifestyle penalties that tenants like Lorenz are subject to in a country that has been championing homeownership for decades.
Almost 70 per cent of the housing stock in Canada belongs to homeowners, a share that’s higher than in the U.S. and the U.K. On the other hand, Germany stands at the opposite end of the spectrum, with owner-occupied housing making up just 45 per cent of total housing, according to data compiled by the University of Toronto’s Neighbourhood Change Research Partnership.
Renters in Canada face a number of hurdles. Finding a place, for one, is often a struggle in itself. The vacancy rate for rental housing dipped to 2.4 per cent in 2018, below its 10-year average of three per cent, according to the Canada Mortgage and Housing Corporation (CMHC). While the country added some 37,000 new purpose-built rental apartments last year, demand for rental units increased by 50,000.
This is putting pressure on rents, especially in condominiums. According to the latest CMHC estimates, renting an average two-bedroom condo in and around Vancouver and Toronto cost more than $2,000 a month, which doesn’t leave much room to save in two cities where the median household income is below $80,000 a year, according to Statistics Canada.
And when growing families look for a home bigger than a two-bedroom — or something with a backyard maybe — they often find even fewer options.
WATCH: Understanding rent-to-own arrangements
Some point the finger at rent control policies that, they say, make it less profitable for companies to build rental properties and discourage landlords from spending money on maintenance and upgrades.
“More activity will be diverted toward condo construction, a segment of the market that is much more immune to rent control as condo owners have multiple avenues to require a tenant to leave,” CIBC economist Benjamin Tal predicted in 2017, when the Liberal government of former Ontario premier Kathleen Wynne was about to re-introduce sweeping rent controls.
“Reduced motivation to invest in maintenance will lower the living standards of tenants on an ongoing basis,” Tal continued. “Unit hoarding will become the norm, creating a static market — clearly a suboptimal outcome for a rapidly growing city.”
(The Conservative government of premier Doug Ford has since rolled back the policy to exclude new buildings.)
WATCH: Is too much of your wealth tied up in real estate?
Others, though, blame the dearth of quality rental units on zoning laws and the condo boom.
For the first couple of decades after the Second World War, all urban areas designated for the construction of high-density housing tended to be, by default, reserved for rental units, according to David Hulchanski, professor of housing and community development at the University of Toronto.
But with the introduction of provincial regulators introducing the condominium form of homeownership in the early 1970s, condos became competition for purpose rental housing in those same high-density areas, Hulchanski said. And, over time, condos edged out rentals.
READ MORE: What $1,500 per month in rent gets you across Canada
Condominiums, where you own your unit and co-own shared elements of the building, offered wealthier apartment dwellers an attractive road to homeownership that wouldn’t compromise their lifestyle, Hulchanski said.
“If you wanted to live in the 1960s or 1950s in a building overlooking Stanley Park [in Vancouver], you had to be a renter,” he said. Today, though, similarly-coveted apartments tend to be condos, he added.
That helps explain why the share of renters in the top 20 per cent of the income distribution has shrunk from 14 per cent to five per cent since the late 1960s, Hulchanski said.
Today, over half of renter households are in the bottom 40 per cent on the income ladder, data shows. That, in turn, discourages the construction of purpose-rental buildings, which has become less profitable, according to Hulchanski.
“Since renters have about half the income of homeowners, condo developers can always outbid rental developers for residential sites,” he wrote in a 2007 research report.
The situation hasn’t changed much since, he told Global News.
Germany: a nation of renters
Renting is a starkly different story in Germany. There, over half of the housing market is made up of private rentals, compared to less than 30 per cent in Canada, according to CMHC data.
The German market’s heavy skew toward rentals has its roots in the post-war period, when much of the country’s housing stock had been destroyed and few Germans had the financial means to become homeowners. But the country’s love affair with renting did not fade away as incomes rose.
That’s because Germany was able to strike a balance between the interest of tenants and that of landlords, according to Michael Voigtländer, a housing policy expert at the German Economic Institute in Cologne.
On the one hand, for example, tenants can usually count on so-called “indefinite rental agreements.” With few exceptions — such as when tenants break their contract or when the landlord needs the property for herself or her immediate family — there’s no threat of being kicked out.
But there are also incentives for landlords, who can, for example, sell their rental properties tax-free, like homeowners, after 10 years, Voigtländer said. In general, Germany strives to pursue a “neutral housing policy” that doesn’t favour homeownership over renting.
READ MORE: ‘Demovicted’ Vancouver renters to get more compensation under new city rules
That, along with an abundance of wealthy tenants with stable jobs, has made it very attractive to own property to let, with individual landlords making up about 60 per cent of the market and the rest split between private corporations, cooperatives and state-owned entities, Voigtländer said.
Another thing that works for both landlords and tenants in Germany is rent control, according to Andrew Allen of Aberdeen Standards Investments, which owns $6.5 billion worth of rental property in the country. Regulation that links rents to the rate of inflation makes for gradual and predictable price changes, which helps reduce tenant turnover and keep landlords happy.
“German tenants tend to stay in our properties for an average of around eight years,” Allen recently wrote in the Financial Times. In turn, “the stability of longer tenancies and rent control helps to attract institutional investors like us.”
READ MORE: ‘It’s definitely a crisis’: Edmonton rental rates steadily climbing, report says
To be sure, Germany is having its own issues with rent control. As demand for rentals outstrips supply in Berlin and other major cities, pushing up prices, the country has been experimenting with rules that impose new caps on rent increases based on the average level of local rents and that oblige the landlord to inform new tenants if the previous rent was below average, among other measures.
Voigtländer fears many of the new regulations will prove unenforceable and is skeptical of whether they would work even if landlords and tenants stick to the letter of the law.
Looking from the outside, though, Allen seems to think rent control in Germany is still a success story.
“Rent control is not a panacea, but it is certainly not the villain,” he concluded in his opinion piece. “Our German experience shows that it could help solve housing problems in the U.K. and elsewhere if done properly.”
READ MORE: As Montreal booms, city’s reputation for affordable apartments takes a hit
For her part, Lorenz is ready to go back home.
The family has set its eyes on a brand-new, three-story unit in a triplex near Hamburg that they hope will become their new home later this summer.
Lorenz said the thing she looks forward to the most is knowing that no one else will have a key to the property.
“That makes me feel like a child every time,” Lorenz said. Then she added: “I hate being a renter in Canada.”
But her North American ordeal hasn’t completely spoiled her outlook on being a tenant. The new home in Germany is still going to be a rental.
Let’s block ads! (Why?)