We have a cultural bias toward homeownership in this country. Other countries have it too. We believe that homeownership is what you should aspire to.
In 2011, Statistics Canada pegged the homeownership rate at 69%. 9.2 million households out of a total of 13.3 million. Other more recent data suggests that it’s probably a bit lower, though still higher than that of the US since the financial crisis.
Regardless, more owners than renters.
I am not here to throw stones. I get it. I own my home. However, I do think it’s important to put this into perspective. Below is a chart from Trading Economics of homeownership rates in the G20:
At the bottom of the list – with the lowest homeownership rates – are Germany and Switzerland. Germany appears almost evenly split between owners and renters. And Switzerland is more renters than owners.
Both of these countries are wealthy. Both have a higher GDP per capita than that of Canada according to the World Bank and the International Monetary Fund.
Anecdotally, I can also say that some of the wealthiest people I know have made the decision to rent. They have simply decided to invest their capital elsewhere.
I’m not trying to insinuate any sort of correlation with these statements, but I am trying to draw attention to a cultural bias.
I was at a good friend’s wedding last night (congratulations again to Adrien + Rachel!), and one of the topics that came up at our table was whether it is better to own or rent your home. Now, in North America, conventional wisdom would suggest – almost mandate – that you have to own your place. If you’re still a renter, well then you’re “throwing away your money” my friend.
But are you really?
A big part of the value of owning your home is that it’s forced savings. Every month when you make those principal and interest payments, you’re paying down your mortgage and socking away money for the future. And this can be a great thing for a lot of people, particularly if you’re not disciplined enough to save otherwise.
But when you own a home, you’re also spending time and money on maintaining that home, and you’re also tying up capital that could be used elsewhere. So consider this: what if, instead of putting your savings towards a downpayment, you simply continued to rent and created an investment portfolio that you then contributed to on a regular basis just as you would a home?
Depending on your assumptions, renting could turn out to put you further ahead financially. Here’s an example of that scenario from the Globe and Mail.
Similarly, I remember being told in business school that companies that own their own real estate tend to under perform those that do not. And the rationale is that owning lots of real estate ties up capital that could otherwise be reinvested in the core business. In other words, if your core business is making widgets, then invest your money in making better widgets, not in real estate.
But this is not to say that everybody should rent. Obviously I’m a big believer in real estate. And for a lot of people, owning may make sense. This post was really just to say that the owning vs. renting decision may not be as black and white as you might think.
Image: Flickr
We have a cultural bias toward homeownership in this country. Other countries have it too. We believe that homeownership is what you should aspire to.
In 2011, Statistics Canada pegged the homeownership rate at 69%. 9.2 million households out of a total of 13.3 million. Other more recent data suggests that it’s probably a bit lower, though still higher than that of the US since the financial crisis.
Regardless, more owners than renters.
I am not here to throw stones. I get it. I own my home. However, I do think it’s important to put this into perspective. Below is a chart from Trading Economics of homeownership rates in the G20:
At the bottom of the list – with the lowest homeownership rates – are Germany and Switzerland. Germany appears almost evenly split between owners and renters. And Switzerland is more renters than owners.
Both of these countries are wealthy. Both have a higher GDP per capita than that of Canada according to the World Bank and the International Monetary Fund.
Anecdotally, I can also say that some of the wealthiest people I know have made the decision to rent. They have simply decided to invest their capital elsewhere.
I’m not trying to insinuate any sort of correlation with these statements, but I am trying to draw attention to a cultural bias.
I was at a good friend’s wedding last night (congratulations again to Adrien + Rachel!), and one of the topics that came up at our table was whether it is better to own or rent your home. Now, in North America, conventional wisdom would suggest – almost mandate – that you have to own your place. If you’re still a renter, well then you’re “throwing away your money” my friend.
But are you really?
A big part of the value of owning your home is that it’s forced savings. Every month when you make those principal and interest payments, you’re paying down your mortgage and socking away money for the future. And this can be a great thing for a lot of people, particularly if you’re not disciplined enough to save otherwise.
But when you own a home, you’re also spending time and money on maintaining that home, and you’re also tying up capital that could be used elsewhere. So consider this: what if, instead of putting your savings towards a downpayment, you simply continued to rent and created an investment portfolio that you then contributed to on a regular basis just as you would a home?
Depending on your assumptions, renting could turn out to put you further ahead financially. Here’s an example of that scenario from the Globe and Mail.
Similarly, I remember being told in business school that companies that own their own real estate tend to under perform those that do not. And the rationale is that owning lots of real estate ties up capital that could otherwise be reinvested in the core business. In other words, if your core business is making widgets, then invest your money in making better widgets, not in real estate.
But this is not to say that everybody should rent. Obviously I’m a big believer in real estate. And for a lot of people, owning may make sense. This post was really just to say that the owning vs. renting decision may not be as black and white as you might think.
Image: Flickr
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