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By Penelope Graham, Zoocasa
Special to the Financial Independence Hub
The rising cost of rent in markets across Canada has become an especially prevalent issue in recent years, as a sharp lack of supply and steep real estate prices put the squeeze on home seekers’ affordability.
The fact is, rising ownership housing values, exacerbated by the federal mortgage stress test, have kept more would-be home purchasers in the rental market for longer; a total of 31% of first-time buyers say they rented for at least a decade before buying their first home, according to a recent Canada and Mortgage Housing Corporation report.
As well, new data from Rentals.ca reveal steadily rising rent costs in Canada’s major markets: up 0.7% in Vancouver to an average of $1,987 for a one-bedroom, while Montreal unit costs rose 8.1% to $1,285. In Toronto, such a unit went for $2,262 in the third quarter of 2019, according to the Toronto Real Estate Board.
A look at one of Canada’s most expensive rental markets
With more Canadians remaining in higher-priced rentals for longer, could these overall higher shelter costs be crimping their ability to eventually move up into the ownership market?
To see whether high rental costs are limiting Canadians’ homeownership options, Zoocasa conducted a study in Toronto, one of the nation’s priciest markets, to determine the rent-to-homeownership-cost ratio in the city. The study sourced average sold prices for condo units in 35 neighbourhoods across the 416 region, as well as the average lease rates for condo rental apartments in each. It also crunched the minimum down payment required to buy a unit in every neighbourhood, as well as the equivalent number of months of rent.
The rent-free possibilities
The findings essentially reveal just how long it would take to save a condo down payment in each neighbourhood, if the saver didn’t also have to pay any rent; while this may seem a dream scenario for many of the city’s dwellers, it could be a possible approach for the 47.7% of young adults StatsCan says still live within the family home in the city. The numbers also illustrate the minimum financial cost required to own a home in each area, as well as how feasible it would be to make the jump from renting to owning.
For the City of Toronto as a whole, the numbers aren’t too daunting; in order to purchase a condo unit in the city at the average price of $628,074, savers would need to amass a down payment amount of $37,807. Doing so would take a rent-free individual 14.7 months if they didn’t need to pay the city’s average rent of $2,567 monthly. The good news is, there are a number of affordable locales where a buyer could break into the market much faster – within a year in a total of 13 neighbourhoods.
In exchange for this affordability, though, buyers will need to give up their ideals of a central location and convenient commute; the majority of these neighbourhoods are located on the eastern and western edges of the city, with less direct access to public transit route.
These neighbourhoods include condos for sale in North York, as well as West Hill Centennial Scarborough, Willowdale, Malvern Rouge, Kipling-Rexdale, and Black Creek.
However, those more interested in condos in downtown Toronto do have a number of options; a total of 19 neighbourhoods fall within the 13 – 24-month saving range including City Place and Liberty Village, which are among the most popular for millennial renters and condo owners alike. In the MLS district that encompasses both of these condo-heavy neighbourhoods, the average unit costs $713,000, requiring a savings timeline of 17 months.
Check out the infographic above to see how months of rent compare to minimum down payment amounts in neighbourhoods across the City of Toronto.
Penelope Graham is the managing editor at Zoocasa, a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings at zoocasa.com or download our free iOS app.
