Renting Instead of Owning

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Any market survey intended to be used as a guide for setting rents should compare total monthly renting costs versus total monthly home ownership costs. After all, if it costs more per month to rent than to own, why would households rent a house or apartment if they can own a condo or house for less? Answering this question properly requires a detailed study across several different markets, beyond the scope of this post, and it’s a question which I think I’ll tackle in the future. In the meantime, a quick-and-dirty version can be done by looking at average monthly housing costs reported in the Census.

The table below compares average monthly shelter costs for owner and renter households for Ontario’s ten largest cities. These are average total costs and include everything an owner or renter household pays per month including rent payments, mortgage payments, utilities, property tax, insurance, etc. It’s basically the ‘grand total’ monthly housing cost, and when seen from a high-level perspective it allows comparisons to be made across cities.

Because average monthly renting costs are significantly lower than average monthly ownership costs in all ten cities in the table above, it theoretically makes more sense to rent in each city, at least on the basis of total costs. The city with the largest ‘gap’ between monthly ownership costs and rental costs is Brampton, where owners pay 52.6% more on average than renters. Hamilton has the second largest gap, where owners pay 42.6% more per month on average than renters. The smallest gaps are in Markham and Vaughan, where owners aren’t paying too much more than renters, although it’s still a few hundred dollars per month. Why these large differences? Brampton and Hamilton both have relatively large supplies of purpose-built rental apartments, so in both cases the “renter household” category contains a healthy mix of new and old purpose-built and non-purpose-built rentals—it’s the older rentals in both cities which pull the average monthly rental costs downwards because older rentals charge lower rents. By contrast, Markham and Vaughan have very few purpose-built rentals and both cities are relatively newly developed (at least compared to Brampton and Hamilton), so the “renter household” category in these cities is composed almost entirely of houses and condominiums for rent, which tend to have higher rents.

However, there are some obvious problems with this data, mainly to do with the use of averages which artificially lowers the average monthly cost for both owner and renter households, but especially the latter. For example, good luck getting a self-contained rental unit for $1,225 per month in Brampton. Similarly, $1,242 won’t get you anything in Toronto other than a room in someone’s house or condo. This tells me that a much more detailed analysis is required, probably focusing on four or five cities, and comparing monthly housing costs for a selection of carefully chosen ownership and rental housing options in each city. That would require a lot of research and making a bunch of assumptions, but if done carefully it could generate some insights and a replicable methodology.