Buying a house: The dream hasn't changed, we have

The dream hasn’t changed, we have

Many argue homeownership is now out of reach, but maybe our sense of entitlement is the real problem


Doesn’t matter where you live, chances are you’ve heard more than one discussion about the state of Canada’s real estate market. Many argue that renting here—particularly in the two hottest markets, Toronto and Vancouver—is a far better choice than buying in at current housing prices. Perhaps most compellingly, there’s Nobel Prize-winning economist Robert Shiller’s assertion that “over the long haul, it’s hard for homes to compete with the stock market in real appreciation.” (That’s right: he’s a renter, too.)

So, why bother buying a house? Some say it’s a rite-of-passage, while others insist the forced savings are a ticket to a secure retirement. There’s also economic impetus: it’s enticing to get into the market when interest rates are so low. But there’s another, far more visceral reason why someone would rather buy than rent: security.

Just ask Kat and Matthew Armstrong. About a year ago, the Toronto parents of three young children found themselves looking for yet another apartment. Their landlord had sold their rental building and the Armstrongs were given legal notice to move. Legislation exists to protect tenant rights, but it doesn’t guarantee those rights beyond the end of the lease. A landlord can evict a tenant for a whole variety of legitimate reasons, and there’s little a tenant can do but move on.

Expect more tenants to face this dilemma in the near future. According to a recent TD report, escalating home prices makes renting more attractive—this leads to higher rents and even less security for renters.

Homeownership: The disappearing dream »

Ironically, our parents and grandparents faced a similar dilemma decades ago. Rewind 70 years and homeownership wasn’t a cornerstone of sound financial planning. North Americans were, by and large, renters not homeowners. Most people lived near where they worked; urban centres were mixed-communities at times plagued by crime and filth, and prone to overcrowding.

Enter the automobile, expanding infrastructure and governmental programs, all of which helped pave the way for mass-produced homes in suburban areas. For the first time owning a house, on a plot of land, with a car, dog and 2.5 kids, was within reach for the many, not just the few.

As noted by Harvard economist Edward Glaeser, this suburban exodus wasn’t all about “cheaper, larger homes.” Owning a home meant our grandparents and parents could afford a better life. By adding to their commute, they emphasized their values: it was financial success—and personal security—that fit their paycheque.

Today, prospective homeowners are also buying into their values of fiscal and social responsibility, security and a happy lifestyle—but in vastly different ways. According to Leigh Gallagher, author of The End of the Suburbs, young North Americans have “turned against the car-oriented, low-rise life. [Instead] they are flocking to city centres.” This resonates because moving from suburban living to urban life is about less dependence on cars, more access to restaurants and locally-owned stores, and being in walking distance to green space.

But Jon Talton, the economics columnist for the Seattle Times, points out that while current urbanites now embrace “high-density, environmentally friendly living,” their focus on the importance of proximity invariably necessitates having a disposable-income lifestyle—and that’s become a double-edged sword for many. A recent study by the Canadian Association of Accredited Mortgage Professionals seems to support Talton’s analysis. The report notes that buyers are willing to forego the material trappings of luxury interior finishes, or the big, expansive lots offered in suburban settings. However, here’s the problem: they’re completely unwilling to compromise on the type of community they live in, or the type and size of the home they want.

Apparently, everyone wants a car-free, neighbourhood-pub quality of life. Everyone wants a right-around-the-corner community centre, complete with an independent home decor store. And because everyone insists on this, old market rules of supply and demand kick in. There are only so many single-family homes that can fit in any given urban area.

This is precisely why you have people extolling the virtues of renting. It’s why you have market pundits pointing out what a poor substitute a house is for retirement savings. But that doesn’t mean buying a house is out of reach for the many.

“Home ownership will be difficult, but not impossible,” says Chris Buttigieg, a senior manager of wealth planning strategy at BMO. Rather, he sees this dream as attainable, but only if people stay within their means. “You can’t have that 3,000-square-foot home immediately.”

In the meantime, however, you can settle for a condo-lifestyle, or wait a bit longer to save up for a larger down payment, or simply move to the ’burbs like Mom and Dad did. Sound distasteful? Then, yes, you’ll probably have to rethink the home ownership dream.