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Renters have harder time accumulating wealth than homeowners




Canadian renters face significant challenges in accumulating wealth compared to homeowners, according to insights from a prominent RBC economist. Carrie Freestone's analysis reveals a concerning trend: renters are increasingly burdened by housing costs, hindering their ability to build financial security and potentially exacerbating disparities between renters and homeowners.


Over the past three decades, home ownership has been a key driver of wealth accumulation in Canada, accounting for nearly half of the nation's wealth growth. This trend underscores the pivotal role that owning a home plays in shaping one's financial trajectory.


Freestone's research highlights a stark contrast between the wealth trajectories of renters and homeowners. While homeowners have experienced a notable increase in their net worth, with figures climbing from nine times household disposable income to 13 times since the fourth quarter of 2010, renters have seen only marginal growth, rising from three times to 3.5 times over the same period. This divergence underscores the widening gap in wealth accumulation between the two groups.


One of the primary challenges facing renters is their limited ability to save for a down payment, a crucial step towards homeownership. Freestone points out that many renters struggle to set aside funds for a down payment due to the significant portion of their income consumed by housing costs. In fact, a considerable number of renters find themselves spending more than they earn, further impeding their prospects of homeownership.


The data paints a compelling picture of the evolving dynamics within the Canadian real estate landscape. In 1999, renters allocated an average of 25 per cent of their take-home pay towards housing costs, including utilities, while homeowners devoted slightly less at 23 per cent. However, by 2022, this gap had widened significantly, with renters now allocating 29 per cent of their after-tax earnings to housing compared to just 21 per cent for homeowners. This disparity underscores the growing financial strain experienced by renters in today's market.


Freestone's analysis raises concerns about the broader implications of these trends on societal inequality. As renters face mounting challenges in wealth accumulation, there is a risk of perpetuating and widening disparities between renters and homeowners. Without meaningful interventions to address these disparities, the divide between the two groups may continue to deepen, exacerbating economic inequality across Canadian society.


In conclusion, the findings presented by Carrie Freestone shed light on the formidable obstacles that Canadian renters encounter in building wealth compared to homeowners. As housing costs continue to rise, renters are increasingly burdened, making it challenging for them to achieve financial stability and enter the housing market. Addressing these disparities is crucial to fostering a more equitable and inclusive society where all Canadians have the opportunity to prosper and build a secure financial future.


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