(Toronto) Renters face significant obstacles in their attempts to build wealth as they are forced to spend an increasing share of their income to keep a roof over their heads, highlights an RBC report.
Economist Carrie Freestone’s report, released Thursday, adds to a growing body of research that paints a grim picture of the wealth gap between renters and homeowners.
Homeowners have seen their net worth increase by nine to thirteen times the value of their household disposable income since 2010, while for renters, net wealth has increased from 3 to 3.5 times over the same period.
In 1999, renters spent around 25% of their net salary on housing, compared to 23% for owners. In 2022, renters spent 29% on housing, compared to 21% for owners.
The gap has widened even though tenants’ incomes have increased at the same rate as those of owners, explains Mme Freestone. Meanwhile, homeowners also build up home equity through their mortgage payments.
Last year was even worse for renters, who went from higher savings rates during the pandemic to not having enough money to cover their bills, according to RBC.
Renters collectively spent nearly 9% more than they earned in disposable income in 2023, while homeowners saved 7% of their take-home pay, according to the report.
“The third quarter of 2023 marked a turning point: both owners and tenants saw their net worth decline. Tenants, however, have unequivocally been hit harder,” wrote Mme Freestone.
She explains that the tightening of restrictions makes it more difficult to save for a down payment.
“In Canada, renters have more difficulty making ends meet than owners: for them, access to property is a dream that still seems very distant. The accumulation of assets by tenants is thus compromised, and could thus exacerbate inequalities in the long term,” says the economist.
Reinforced inequality
The report follows TD’s report, released in October 2022, which also highlighted the marked gap in wealth accumulation between renters and homeowners.
The TD report led by chief economist Beata Caranci found that the average net worth of homeowners born between 1955 and 1964 had reached more than 1.4 million, 6.3 times higher than the wealth of non- owners born at the same time.
The wealth gap of 1.2 million between the two has widened from a gap of just under $500,000 in 2005.
“Wealth inequality really creates a discourse that differentiates between homeowners and non-homeowners,” said Ms.me Caranci in the report.
She says the divergent paths of baby boomers who were homeowners and renters may turn out to be worse for today’s young people.
“It is likely that the current generation of young Canadians will not only confirm the truth of this narrative of property inequality, but will reinforce it as affordability is now at its lowest level in decades” , estimates Mme Caranci.
Edit policies
She says there are many long-standing policies that disproportionately benefit homeowners, including the capital gains exemption, the partial GST rebate on new properties, the property purchase tax credit a first home, tax credits for renovation and others.
“If the savings and investment situation is so skewed in favor of housing, it is because the housing system itself is structured in such a way as to perpetuate inequalities between owners and non-owners, that “this concerns zoning giving priority to single-family homes or tax policies that subsidize property,” writes Mme Caranci.
Changing those policies could be a game-changer, but suggestions to do so have proven deeply unpopular, according to Jim Dunn, a professor at McMaster University and director of the Canadian Housing Research Collective.
“The type of measures that could be taken have been ruled out by many governments,” says Dunn.
Even a modest capital gains tax would help cool the market and make housing less of an asset, he believes. As it stands, rising property prices are prompting more and more people to enter the market.
As these measures are not on the agenda, the government could do more to stimulate social housing in order to ease the pressure on low-income households, says Mr. Dunn.
The federal government has begun to increase funding in this area, but after decades of insufficient construction in the provinces, Canada’s 4% share of social housing is lower than the OECD average of 7%.
Generally speaking, there is a need to take a closer look at the underpinnings of a system in which wealth accumulation is so tied to housing, rather than income growth, Dunn says.
“We basically decided to have a system where, instead of paying people salaries, we give them wealth increases,” he argues. We should think about ways to change this, because we find ourselves in a situation where people cannot access property. »