In Canada, housing can be costly and difficult to find, especially in major city centres like Toronto, Vancouver, and Montreal. And although the Canadian government has a 10-year, $82 billion National Housing Strategy to address housing, finding suitable accommodations could be a challenge. Your best strategy is to prepare yourself with a budget and information about the area where you plan to live.
Make a budget
Having a realistic idea of how much money you can afford to spend on housing is important. This will help you narrow your search and prevent you from overspending.
You can make a simple budget by comparing your income to your monthly expenses. In addition to housing, groceries and transportation, make sure you account for the cost of utilities like internet and cellphone, and a little extra for entertainment or a meal out once in a while.
It’s a good idea to research the area you want to live in to make sure it has access to the amenities and services you need, like schools, community centres, and transportation. You can learn a lot about a certain place by talking to people who live there or joining residents’ groups on social media.
Once you’ve narrowed your search, look up the average cost to rent or buy through the Canada Mortgage and Housing Corporation. Statistics Canada has information on the vacancy rates in dozens of metropolitan areas.
Suppose you need to be near a certain location, such as a workplace or your relatives. In that case, your options may be more limited, but you can generally find more affordable housing in neighbourhoods that are a little further from the centre. If you’re flexible about where in Canada you’ll live, you might get significant savings. For example, the CMHA says the average cost to rent a two-bedroom place in Toronto in 2022 is $2,692, but the same in Winnipeg goes for $1,301. The cost of buying a home is similarly affected by region.
To rent or buy?
If you have the means, you might consider purchasing a house rather than renting. Each has benefits, but your decision might be about your financial goals.
- Buying a home: One benefit of buying a home is that you’ll be building equity (the value of the mortgage you’ve paid back). Owning your home also provides a certain amount of security and privacy. However, you may give up some flexibility. Unlike a rental, you can’t give 30 days’ notice if you want to move. Plus, it’s harder to budget because maintenance costs and mortgage interest rates fluctuate. Finally, buying involves many extra costs, such as lawyer fees, land transfer tax, and insurance.
- Renting may be less expensive and come with less responsibility, like maintenance. With fixed monthly costs, you can free up more money to do other things like save or invest. However, you aren’t building equity when you rent. Living in a rental also means you don’t have as much privacy or the freedom to renovate.
Whether you rent or buy is a big decision, but there is some help. The RBC Rent or Buy Calculator lets you input your rent and see how much of a mortgage you can afford paying the same amount. It also shows how much you could pay for a home.
There’s also the “40% rule,” which isn’t as much a rule as a guideline that suggests you should be able to pay all of your housing costs and other debts like credit cards or loans for no more than 40% of your income.
Finally, it’s worth noting that in 2023, the Canadian government introduced the First Home Savings Account. This tax-free account lets you save up to $8,000 annually (to a $40,000 maximum) towards buying your first home. It works like an RRSP in that your contributions aren’t taxable, so they can reduce your tax bill, and, like a TFSA, the money you withdraw is also tax-free. These funds must be used for a down payment (or you can transfer them to an RRSP).
Ultimately, your decision about whether to rent or buy will have much to do with your current financial situation, lifestyle, and future financial goals. Your best bet may be to engage a real estate professional serving newcomers.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.