Canada’s next wealth divide? It’s renters versus homeowners, RBC says

Persistent unaffordability in Canada’s housing market is widening the wealth divide between renters and homeowners, Royal Bank of Canada says in a new report.

“Canadian renters are getting squeezed more than homeowners, making home ownership an even more distant dream,” report author and RBC economist Carrie Freestone writes.

The RBC report says that after a brief reprieve during the pandemic where most households saw their savings rates climb, the third quarter of 2023 marked a “turning point” for both renters and homeowners, with both groups seeing declines in net wealth.

“But renters have undoubtedly been hit the hardest,” Freestone notes, amid a decline in the value of their financial assets.

This group is also “dissaving” – spending more than they earn. The report uses Statistics Canada data to show that renters spent almost nine per cent more than they earned in 2023, while homeowners comparatively saved seven per cent of their takeout pay.

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Freestone points to higher housing costs driving this divide. While renters and homeowners have seen their pay rise at the same pace since the late 1990s, the proportion of income renters put towards housing costs has “grown rapidly,” the report notes.

In 1999, renters put an average of 25 per cent of their take-home pay toward housing costs, compared with 23 per cent for homeowners. As of 2022, renters put 29 per cent of their pay toward housing compared with 21 per cent for homeowners, widening the gap.

For renters who already typically have lower incomes to start than homeowners, this limits their ability to put away savings for a down payment, cutting off their path to homeownership, which Freestone notes has been a traditional source of growing wealth in Canada.

“This threatens renters’ path to accumulating wealth—which could exacerbate inequality over the longer term,” the report says.

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Inflation and higher debt-servicing costs are also affecting renters’ abilities to save for a down payment. The RBC report argues that renting could increasingly become the default for middle- and upper-income earners if ownership affordability does not improve.

Home ownership is now “more likely to be associated with an inheritance or the transfer of wealth” than based on household income, the report says.

A StatCan report from last fall also indicated that the children of homeowners are more likely to own a home themselves than those whose parents were renters.

The RBC report notes that the value of homeowners’ real estate has grown four times faster than life insurance and pension savings, with home equity acting as a traditional “nest egg” to fall back on.

“But with access to home ownership more constrained, some Canadians may not reach their savings goals in the absence of alternative vehicles for wealth accumulation,” Freestone writes.

“The risk of greater inequality between renters and homeowners is one of the many reasons why Canada must address its housing crisis.”