Canada’s housing market continues to deepen the economic divide between renters and homeowners, according to a recent report by the Royal Bank of Canada (RBC).
Author and RBC economist Carrie Freestone highlights the widening gap, emphasizing the disproportionate impact on renters. Despite a brief period during the pandemic where household savings increased, the third quarter of 2023 marked a turning point, with both renters and homeowners experiencing declines in net wealth.
Renters have been particularly hard hit, facing a decline in the value of their financial assets and spending more than they earn, according to Statistics Canada data referenced in the report. In contrast, homeowners have been able to save a portion of their income.
One of the primary drivers of this divide is the escalating housing costs. While both renters and homeowners have experienced similar increases in income since the late 1990s, the proportion of income spent on housing by renters has risen significantly, widening the gap between the two groups.
This trend has serious implications for renters’ ability to accumulate wealth, particularly through homeownership, which has historically been a key avenue for wealth growth in Canada. With higher housing costs and limited ability to save for a down payment, renters face barriers to homeownership, exacerbating inequality over the long term.
Factors such as inflation and rising debt-servicing costs further hamper renters’ ability to save for homeownership. The report suggests that without improvements in affordability, renting could increasingly become the default for middle- and upper-income earners.
Moreover, homeownership is increasingly associated with inheritance or the transfer of wealth, rather than household income. This trend is reflected in data indicating that children of homeowners are more likely to own homes themselves.
Home equity, traditionally seen as a “nest egg,” has outpaced other savings vehicles, further highlighting the importance of homeownership for wealth accumulation. However, with limited access to homeownership, some Canadians may struggle to meet their savings goals.
In light of these findings, the report underscores the urgent need to address Canada’s housing crisis to mitigate the growing wealth divide between renters and homeowners.