The Rental Generation: What Happens When Ownership is No Longer The Goal?

There is a whole generation of Canadians out there that have no interest in owning - well, anything.

They are happy to rent their apartments.

They take Uber instead of buying their first car.

They AirBnb condos all over the world instead of striving to buy their own cabin.

Heck, they don’t even own their own CD collection - Spotify subscription to the rescue!

Part of this is truly admirable.  As my (really smart and thoughtful) friend put it, this generation will have much more flexibility to pursue their dreams, change careers and locals on a whim, and may never know the burden of making a mortgage payment in the same month that their car needs new brakes and a winter tires.

But are they sacrificing security later in life for freedom now? I’d argue, yes.

Housing Costs Later in Life

The single biggest expense on your budget (outside of taxes) is your home.  It doesn’t matter if you rent or buy, having a roof over your head takes the biggest chunk of your income on a monthly basis.

If you rent forever, the MOST you will ever pay is the rental amount.  

If you buy, the mortgage payment is the LEAST you will ever pay; add taxes, insurance, repairs, renovations, etc - it is more expensive to own a house than rent.

However, when you rent you have no control over the price of your rent.  It can go up, and up, and up - and it will, inflation is a real life thing.  You could end up paying $4,000, $5,000 or $10,000 a month as a 70-year old.  Who knows, free markets are a complex thing.

If you own your home and pay off your mortgage, the biggest line in your budget isn’t so scary anymore. Yes, you will still have to pay taxes and insurance, but those are relatively small. Owning your home gives you security of controlling your expenses.

YOLO and FOMO Will Ruin You

The ‘You-Only-Live-Once’ and ‘Fear-Of-Missing-Out’ movements will rob your future from you.  If you know me, you know I am not one of those advisors that tells you pinch your pennies; I have stated before, I am All-Pro in spending! I can decimate a paycheque better than most.

If you don’t have a mortgage payment that is forced on you, the extra money in your account better be going towards something useful.  If not, you’re going to end up at 40 with no real assets and behind the eight ball.  

Going to Vegas four times a year is pretty easy when you have an extra $2,500 on your pay cheque monthly.  If you aren’t buying a house, you NEED to be investing that money to pay for your more expensive rent later in life.

Your (Tax) Shelter 

There are three places in Canada that the government does not currently want it’s cut from:

1. Life insurance proceeds
2. Tax Free Savings Account (TFSA) withdrawals
3. Your primary residence

Paying off your mortgage whilst having your home appreciate over the years is by far the most common way that generational wealth is created.  A paid off home is a wonderful gift to your kids when you eventually pass - zero taxes to be paid.

Owning a home is a tax shelter. There are not many ‘free lunches’ available to hide wealth from the tax man, this is one of them.

My Take…

I don’t blame young people for being discouraged about home ownership.  I bought my first home with a friend for $211,000 in 2004. That same home is worth about $700,000 now (I Googled it). I assure you, daytime restaurant managers aren't making $110,000 a year to start nowadays (roughly the same percentage increase of my salary in 2004).

Buying an intercity home three blocks from The Ship isn’t an option anymore - I’m sorry to burst your bubble. But you know what is an option?

• Buy a house in Airdrie or Okotoks
• Start with a condo or a townhouse
• Buy with a friend - or multiple friends - instead of renting
• Build a rental suite above the garage on a house to subsidize costs
• Airbnb your house while you’re gone for the holidays
• Get a second job
• Don’t drive, take transit

This advice is so easy to get wrong; so easy to come off as a ‘tone deaf boomer’, but if home ownership is the goal - get out there and do something about it! You have options.

With a healthy ‘bias for action’ almost anything is possible.