Canadian renters in major cities can't afford to switch to homeownership

The combo of soaring home prices, high mortgage rates, and dwindling inventory is making the dream of homeownership out of reach for many renters. 

According to a new report from Point2Homes, renters in 36 of Canada’s 50 largest cities can’t afford to switch to homeownership.

These Canadians are earning up to 60% less than what they would need to be able to afford a starter home. 

Two of those cities are Vancouver and Richmond, BC. 

Meanwhile, a whopping 12 major cities from Ontario are included in the list of areas where renters can’t buy a starter home. 

Renters in five Ontario cities earn less than half the income needed to buy a home. 

“Renters in Richmond Hill, Oakville, Markham, and Vaughan earn an average of $70,000, but they would need around $160,000 and even close to $170,000 to afford a starter home in their city,” the report reads. “Burlington renters earn even less, although starter homes there aren’t much cheaper.”

Point2Homes explains it can be hard to define a starter home nowadays, considering the “highly heterogeneous housing market.”

So, this report defined a starter home as a home that “starts a first-time buyer’s homeownership journey.”

“Whether they’re small or sprawling, less than $200,000 or more than $700,000, it’s the market that dictates the definition of the starter home,” it explained. “To level the field, we considered starter homes to be valued at half the city’s benchmark price.”

Point2Homes looked at renter household income in the 50 most populated cities in Canada to see where renters could switch to homeownership — “considering that the monthly mortgage should not represent more than 30% of a renter household income and assuming a 20% down payment with a loan based on a 5.75%, 25-year fixed-rate mortgage.”

Judging by the latest numbers, “renters in the majority of Canada’s largest cities are very far from fulfilling their homeownership dreams,” Point2Homes said.

Where you could actually afford a home

Meanwhile, Point2Homes found that renters in only 14 cities earn 100% or more than they would need to afford an entry-level home.

“The renter household income is 2% to 52% higher than the minimum income needed to comfortably afford a starter home,” Point2Homes said. 

Edmonton, Alberta, and St. John’s, New Foundland, are the best cities for renters to be set up for success as they earn over 50% above the minimum income needed. 

This is because, in most of these cities, a starter home costs less than $200,000. 

“Renter household income in Edmonton, AB is around $70,000 and the price of a starter home hovers around $185,000,” Point2Homes said. “Assuming a 20% down payment and a 5-year fixed-rate mortgage with an interest rate of 5.75%, these numbers mean that Edmonton renters are uniquely positioned to make the transition to homeownership.”

While the rest of the cities on the list in Alberta may not have the same luck as Edmonton, Point2Homes said it’s still much easier to transition from renter to homeowner than in other major cities in Canada.

Only five cities have met the criteria for affordability, Point2Homes reports: Regina and Saskatoon, Saskatoon; Calgary and Edmonton, Alberta; and Winnipeg, Manitoba.

“The remaining 37 large cities have progressively smaller shares of entry-level homes, with 11 of them having virtually zero homes that would be affordable for renters.” 

“A total of only 10 of the 50 cities in the study have starter home prices under $200,000, but not all of them have many homes currently on the market around that price point.

Since calculations by Point2Homes were made based on the median value of starter homes in Canada’s 50 largest cities, there is a chance people can find homes at a lower price.