Is “Rental Stigma” Fading In Toronto?

Leasing/Renting

8 minute read

August 25, 2021

“You’re not going to throw away $36,000 in after-tax dollars on rent every year.”

That’s what I emailed to a client on Sunday after she sent me the listing for a $3,000 per month, 2-bedroom house that she wanted to go check out.

I’ve known this client for a long time.  I took her and her roommate around the city in 2007 when they wanted to upgrade their current rental, but as she’ll laugh about today, “We were such a waste of your time!”  After many, many property viewings, they decided to stay put.  But at least they took me for dinner at Captian John’s Harbour Boat Restaurant!

That was a huge “thank you.”

And honestly, I’m a cheap date!  I’m easy to impress, I don’t stand on ceremony, and I don’t need Instagram-worthy food to be satisfied.

Seriously, this is my kind of restaurant!

Fast-forward about fourteen years and after marriage, divorce, and an infinite number of life experiences in between, my long-time client looked me up again and said she wanted to buy a condo.

Easy enough, right?

The condo market has not been kind to us!  We have only made two offers, but both were in competition, and we obviously lost both times.  She’s the kind of buyer that knows what she wants, and knows when we’re not standing in the living room of “the one,” and as a result, options have been few and far between.

So here we are in August, after a summer condo market that didn’t give us any properties of interest, and all the while, watching the condo market push higher, and she’s finally looking at a plan-b…

renting.

My gut-reaction was that which you read above – that she’s not going to “throw away” $36,000 per year on rent!

But am I being old-fashioned?  Am I trying to ‘father’ her when I should be listening to her true needs?

Whether or not to rent depends on a multitude of factors, and no two people find themselves with the same decision at hand.  Your age, your marital status, your dependents, your career trajectory – these all play a factor, and that’s before we’ve even considered savings, down payment, salary, and a person’s personal finances.

For a person in their mid-30’s, who has never owned real estate before, and who can afford to purchase as well as carry the property with ease based on salary, purchasing is a no-brainer.

But I will admit, I stopped and thought about this one for a while.

What if she rented for just one year?  Leaving a smaller 1-bed, 1-bath unit in a multiplex and heading for greener pastures in a 2-bed, 2-bath, semi-detached in a new and different area?  Maybe this year will help as a “bridge” of sorts, both in terms of her physical residence but also to move on to the next phase of life?

I still think buying makes more sense, and that the $3,000 per month she’d be throwing away on rent could be paid into a mortgage, of which likely $1,500 or more is principal.  But I also know that in other situations, renting simply makes sense.

So who are these people?

And what are these situations?

To be blunt, I think that as we watch this federal election play out, and all the candidates talk about making “housing affordable for all,” we’re ignoring the absolute impossibility of that utopian ideal.

The only way that housing could truly be affordable “for all” is if we ignored geography entirely.  If you can’t afford to purchase a starter-home for $1,000,000 in Toronto, then try Nunavut.  It’s “affordable for all” up there.

But for those who want to live in a particular area, we need to go back to basic and fundamental economics and understand the difference between “wants” and “needs.”

Nobody “needs” to own.  They simply “want” to.

And while we can debate whether you “need” to own in Toronto if you work in Toronto, or whether that’s a “want” by very definition, suffice it to say, there are other options.  There’s no reason you can’t own in Ajax and drive or take transit to Toronto for work.  Do you want to?  Of course not!  But if economics and personal finance join forces to limit options, then what else can you do?

Ignoring the idea that whichever political party wins the upcoming election will ultimately “cure” a non-disease, ie. the less-than 100% rate of home-ownership in this country, we have to ultimately accept that renting is a viable lifestyle for Torontonians.

I’ve been preaching this for years.  And while I sell real estate for a living, I continue to suggest that a time will come in Toronto when more than half of the city’s inhabitants rent their homes and condos, and more to the point, do so willingly.

Another idea we’ve discussed on TRB over the years is this notion of “rental stigma.”

If I were to search for this in my own blog archives, I’m sure I’d find a slew of posts.

But you don’t want to hear it from just me.  What have other media outlets reported over the years?  I’ve saved a few links on this subject, so let’s turn back the clock…

“Rental Stigma Holds Canadians Back”
Canadian Real Estate Wealth
July 3, 2019

Here’s an excerpt:

“We do think of renters, too often, as a second-class neighbours and we use that second-class status to discourage having rental buildings in neighbourhoods that have typically been more oriented to single-family detached homes,” said Dr. Paul Kershaw, founder and lead researcher of Generation Squeeze, an advocacy organization for young Canadians. “We have to change that and recognize that renters are just as excellent neighbours as owners and recognize that many people’s kids are going to be renters for long periods of their lives, even if they’re lawyers, and recognize that things are changing.”

But the best part of this column was when the author basically said what I’ve been saying for years, and even named the same cities that I do in the context of this argument!

“The whole class dynamic in housing is changing for the young demographic,” continued Kershaw. “Paris, Berlin, London, New York, Hong Kong and lots of other amazing places in the world are renter-oriented. We have great rental-oriented cities but we just need to make sure that renting a home can provide security of tenancy so people can raise children who can stay in the same daycare and same school without the without worrying about having to soon move.”

Exactly!

I’ve always mused, “You’d be a fool to get off the airplane in London, England, and ask, ‘where do I go to purchase a home?'”

So why do people simply expect to afford and buy a home in Toronto?

I point to our left-wing over-promising government, but I’m losing that argument with many of you.

So shall we wind the clocks further back?

“Rental Stigma To Fade As Housing Prices Climb”
Toronto Star
November 28, 2016

Here’s the first line of the article:

In another decade, renting will no longer be a dirty word when it comes to housing in the Toronto region, predicts a researcher who has looked at housing markets in Europe and Australia.

Sounds great!

Except, we’re five years into that decade-long prediction, and we’re no further away from the stigma of renting than we were when this was written.

The article continues:

In Canada, renting is a “tainted” housing choice because home ownership is tied so closely to measuring success. But ownership may have peaked in the Toronto region at 70 per cent, he said on Monday.

“In Canada, unlike other countries, (renting) is typically associated with the affordable housing end of the spectrum. In Vienna, 60 per cent of that city is rental — beautifully constructed buildings and it’s market rental, so people aren’t house-poor,” said Smetanin.

How about even further back?

“Why You Should Rent That Condo – Even If You Can Afford To Buy It”
Financial Post
August 15th, 2015

From the article:

“The stigma that’s attached to renting eventually begins to fade,” says Shaun Hildebrand, spokesperson for Urbanation, a firm that researches the Toronto condo market. “I think that’s a natural thing that happens when a real estate cycle, when it gets to the point where it has, where housing prices have gotten to the point they have.”

Again, we see the idea that rental stigma “is going to fade.”

But this article appeared in a major Canadian newspaper six years ago!

You see where this is going, right?  The more I search, and the further back I go, I’m bound to find more examples of either columnists or economists suggesting that rental stigma is going to fade away.  And yet, it hasn’t.

Last week, I read this article in the National Post:

“Modern Living: ‘It’s Very Normal For Wealthy People To Rent'”
National Post
August 20th, 2021

The article did come off as a bit of an advertorial at times since it was flogging units in a new development, and most quotes were from developers and salespeople, but it seems to take the opposite view of all the other articles about rental stigma, in that previous articles were about those at the lower-end of the income spectrum renting, whereas this article is about the “wealthy” selling their primary residences and moving on.

Judging from this quote, there’s obviously a target market in mind:

Much of the project’s success will depend on enticing locals who are looking to downsize from large homes and move into a luxury building that lacks the complications of condo ownership, Levy says. “They can sell their house, put a few million dollars in the bank, write us a first and last months’ rent deposit cheque for $20,000, move into something that is more luxurious than what they left behind and still have plenty left over to travel, dine, shop, hit the town and so on.”

Obviously, this article is about the uber-wealthy who choose to sell their mansions and stuff money into their mattresses while they galavant around the world visiting vineyards and buying designer shoes.

They go on to describe attempts to lure in a more young demographic, but I don’t know if it works:

Set near Kensington Market and the University of Toronto, the Waverley is geared toward a younger crowd, Rocca says. “Our social programming is extensive. We have two to three events per week — movie nights, food trucks, going to a Blue Jays game. We really invest in creating a sense of community that you would never see on the condo side.”

What I found interesting about this section of the article was that it took the opposite approach to “rental stigma” as those in the past.  Yes, it’s talking about a wealthier demographic but it’s also talking about renting as a choice.  It’s talking about renting as a social movement, whereby late-stage millennials and generation-z prefer to live in a community and attend movie nights together, rather than scrimp and save to buy that proverbial “box in the sky” and live alone.

It’s marketing, no doubt.  It’s selling a fantasy of sorts, but part of me can see it working.

Whether we’re talking about the jet-setting wealthy who rent as a convenient alternative to keeping money in a part-time dwelling, or the youngsters who don’t put the same level of importance on home-ownership as their predecessors, or those who prefer to own but can’t afford it, we’re going to see a massive shift toward renting in Toronto over the next twenty years, if for no other reason than necessity.

Our age-old friends, supply and demand, are going to have the final say on the balance between renters and owners in this city.  I think that a politician promising “Everybody who wants to own a house will own a house” may as well say, “We can all play first base for the Blue Jays,” and that “We can all marry supermodels!”

There just aren’t enough houses to satisfy the number of individuals that want one.

And to play off Monday’s blog post, where we discussed the idea that, sadly, nothing can be done by the federal government to “end the housing crisis,” can we not agree that in lieu of decreasing demand (which hasn’t worked), and in lieu of increasing supply (which is primarily a municipal problem), that renting is the obvious solution?

From a financial standpoint, lifetime-renters will miss out on a possible (probable?) capital gain, but it will lower their cash outflow every month, and in times of higher interest rates, the difference will be substantial.

One thing is for certain: I will end up writing about “rental stigma” again in 2022.  No doubt about it.

And you want an easy parlay, I offer that I will most certainly write about rental stigma again in 2023.  And 2024.

And then?

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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8 Comments

  1. Pingback: Is “Rental Stigma” Fading In Toronto? - News Times
  2. JL

    at 10:29 am

    To be fair, a good portion of that $3000 “being thrown out” also needs to be spent when owning too, in the form of condo fees/upkeep, repairs, financing, utilities, and any other costs that are typically included in rent. The argument still stands on the principal side, of course, but just wanted to keep the size of that rent vs. own gap a bit more honest.

  3. Steve

    at 12:49 pm

    ‘I think that a politician promising “Everybody who wants to own a house will own a house” may as well say, “We can all play first base for the Blue Jays,” and that “We can all marry supermodels!”’

    I think the interesting thing is that politicians for the most part are not saying that, they are talking about creating “affordable housing”. What most people hear when they say this is indeed everyone who wants to buy a house will be able to, but there’s a lot more nuance to it than that.

    First of all what does affordable really mean anyway in say that GTA, and is creating a photo housing really about creating places that people can buy. Certainly a lot of the actual plans are much more centered on social housing programs, co-ops and rental apartments. I think this is recognition of exactly what you’re talking about which is that in practice while the majority of people want to be able to afford to buy a home that’s just not realistic regardless of which party is In power.

    Was this expectation of ownership balways there in Canada or is it an anomaly born out of post WWII prosperity?

    1. Steve

      at 12:50 pm

      Speech to text did me dirty here. A photo housing == affordable housing.

    2. Condodweller

      at 2:26 pm

      I also think that politicians need to focus on everyone being able to obtain secure shelter where they can live in security and with dignity. We have a major gap between a homeless shelter and a rental. If you can’t afford to rent the next option shouldn’t be living in a van to avoid a shelter.

      Moving out of the city to be able to afford to buy is one thing. If one has a well-paying job and can’t afford to rent, moving away shouldn’t be the answer. Net-net they aren’t likely to be better off with a lower paying job.

  4. Condodweller

    at 2:22 pm

    This is a nonstarter question when one has no choice. If one can afford to buy but can’t figure it out for themselves whether it makes sense for them or not then hire someone who can. Part of the problem seems to be that people are not willing to pay for this type of advice even though there are big financial consequences and it seems to me it would be money well spent. I see people asking for advice in various Reddit forums and the responses are such a wide spectrum how is someone going to be able to make a decision?

  5. cyber

    at 4:20 pm

    In my circle at least (<35, working professional) the sense I get is that there's more of a "stigma" associated with living in the 905 (or even Scarborough…) than renting in the 416 and having kids in apartments.

  6. Mike

    at 4:43 pm

    Hello Dave,

    Your web site is great, it’s very helpful to me during the last several weeks when I was selling my house.
    You are a great person, however,
    “You’re not going to throw away $36,000 in after-tax dollars on rent every year.” is very misleading and it’s as irrational as Garth Turner’s view. Cost of owning is also “throw money” on interest, tax, maintenance, etc.

    There are many variable when making such a big decision, hard (interest rate, yield, cycle, etc) and soft (job, family, kids, investment experience) variables.
    We bought our house 17 years ago (I knew Garth Turner before then!), sold it mid Sep and decided to rent a bigger house for 1-3 years, because for my family and me, it makes sense.
    (We leased before listed out house)
    I calculated the real cost of renting is 11% per year compounded in last 15 years.
    Of course, for most people, real estate is a good investment if they buy the right property and the timing is right (which is most of the time in last 20 years), my view is real estate is similar to leverage bond, and even better, volatility is low and the collateral is not callable by lender, so it’s safe to use 4-5 times leverage, thus improve the returns on initial capital.

    If your clients that are renting use the downpayment to maximize RESP, TFSA, RRSP, they may better off in the future.

    All the good luck to you and your clients.

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