“If you’re renting, you’re just throwing money away.” It’s one of the most misinformed adages in Canadian society and a mantra of previous generations who mean well, but are out of touch. What they fail to realize is that while renters rent space, homeowners are also renters. They rent money.
The critical difference, of course, is that homeowners build equity over time. Statistics Canada recently released data showing that the net worth of homeowners dwarfs that of renters: For households with primary earners under 35, the median net worth of homeowners in 2023 was $457,100, compared with just $44,000 for renters.
But soaring real estate prices have made owning a home an unattainable dream today for many Canadians, particularly younger generations. A recent report from Scotiabank noted that the proportion of Canadians between 18 and 34 owning a home has dropped a staggering 45 per cent since just 2021.
So do we just keep telling people that they are irresponsible for renting – no matter how expensive mortgages have become? That seems defeatist. Instead, we need to empower renters to make the most of the hand they’ve been dealt.
The truth is that renting isn’t merely a stopgap or a sign of financial inadequacy. When coupled with disciplined financial planning, renting can be a strategic choice that leads to substantial wealth accumulation.
Renting offers financial flexibility that homeownership often cannot. Without the burden of a hefty down payment, closing costs or maintenance expenses, renters can allocate more of their income toward other financial goals.
This is particularly advantageous for high-income earners who could rent premium properties while investing surplus income into diversified portfolios. Over time, the returns from stocks, bonds or other investment vehicles can outpace the appreciation of real estate in certain markets.
Renting provides enhanced mobility. Capturing career opportunities may require geographic flexibility and not being tied down to a property can be a significant advantage. Renters can relocate more easily to advance their careers without the logistical and financial challenges of selling a home.
Moreover, high-income renters might enjoy premium amenities in rented properties that would be cost-prohibitive to own, enhancing their quality of life.
Homeownership also isn’t without risks. Property values can stagnate or decline, affecting homeowners’ net worth. Homes are illiquid assets. Selling quickly may not be possible without significant loss. And if all you have is your home at retirement (and little personal savings), then converting that equity into retirement funding is not as simple as it seems.
The key to building wealth as a renter lies in disciplined financial management. The money saved by not owning a home needs to be strategically invested, rather than be absorbed by increased spending. Without the forced savings mechanism of a mortgage, renters must treat investing as a non-negotiable expense, just like rent or utilities.
However, we have to recognize that renting while building wealth is qualitatively different for individuals across income levels. High-income renters often have the means to invest the difference aggressively. They might rent by choice for lifestyle flexibility, access to premium locations or to avoid the responsibilities that come with homeownership.
For lower-income households, renting is often a necessity rather than a choice. High rent-to-income ratios can make it challenging to save, let alone invest. Housing quality, stability and the ability to save are all compromised.
Financial success should not be measured solely by homeownership. By redefining what it means to be financially successful, we open the door for more Canadians to feel empowered about the housing choices they have.
Renting doesn’t have to be a consolation prize in the face of unattainable homeownership. The narrative needs to shift. Renting was never throwing money away as you get something for it: a roof over your head. But it can also be an opportunity. An opportunity to invest, to be flexible and to make choices unbound by traditional expectations.
With discipline and strategy, many renters can unlock doors to wealth just as homeowners can. And similarly, homeowners without discipline and strategy can end up financially insecure, too.
Ultimately, financial security hinges on discipline, planning and informed decision-making. Whether you’re renting or owning, it’s the commitment to these principles that will pave the way to financial success.
Preet Banerjee is a consultant to the wealth management industry with a focus on commercial applications of behavioural finance research.
