The Pros and Cons of Buying vs. Renting in Toronto

Is there a difference between buying vs. renting in Toronto? Rental costs remain sky-high while home prices are still out of reach for many households in the city. Be it elevated mortgage rates or the supply-demand imbalance, there are many hurdles for prospective homebuyers to overcome. Of course, to determine whether to buy or rent in the Toronto real estate market, it is essential to assess the data.

According to the August 2024 Rentals.ca Rent Report, the average asking rent price for a one-bedroom apartment was $2,443, little changed from the previous month. Additionally, the asking rent price for a two-bedroom unit was $3,198, unchanged from the prior month.

Overall, the Toronto rental market was the third-highest in the country. What were the top two Canadian rental markets? The British Columbia cities of Vancouver and Burnaby, with the average rent prices clocking in at $2,761 and $2,566, respectively.

Average asking rents for shared accommodations were up 9.1 per cent annually, averaging $1,005. In Toronto, average roommate rents were $1,232, up 4.9 per cent compared to the same time a year ago. In Vancouver, roommate rents were up 1.4 per cent annually to $1,476.

Exceptional population growth has been one of the driving factors of the Toronto rental market, says Toronto Regional Real Estate Board (TRREB) President Jennifer Pearce.

“Record population growth kept the demand for condo rental apartments high in the second quarter. The affordability challenges associated with high mortgage payments for ownership housing also continued to be a driver of rental demand, especially given that we have seen some relief in rents over the past year,” Pearce stated in a second-quarter report.

This will undoubtedly be fodder for the age-old debate: Is Toronto more affordable than Vancouver – or vice versa?

Meanwhile, what are the three cheapest rental markets in the Canadian housing sector? Saskatoon ($1,216), Fort McMurray ($1,249), and Regina ($1,334).

The data do come with some caveats. On the one hand, according to a second-quarter study by Urbanation, the construction of purpose-built rental supply has surged 174 per cent in the last year, lifting the total inventory to a multi-decade high of 22,064 units. On the other hand, rental development has slowed in recent months.

Indeed, the latest conditions have many families stumped as to what to do next. Buy or rent?

Are you trying to decide whether to buy or rent in the Toronto real estate market? Let’s break down the benefits and drawbacks of both options so you can make the right choice for your financial situation and lifestyle.

The Pros and Cons of Buying vs. Renting in Toronto

Let’s take a look at some of the pros and cons of buying versus renting in Toronto.

The Price

First, let’s get down to the brass tacks. Here is a breakdown of home prices in the Toronto real estate market:

• Detached: $1.648 million
• Semi-Detached: $1.254 million
• Townhome: $970,661
• Condo Apartment: $748,330

According to statistics compiled by Canada Mortgage and Housing Corporation (CMHC), the average mortgage payment was approximately $3,366 in the fourth quarter of 2023. Of course, this would vary by vast margins based on the property type, but this can offer you a glimpse of how much you can expect to spend every month to service your mortgage.

This is far below the average cost to rent a one-bedroom unit in Canada’s largest city. As many young buyers can attest, the chief challenge is having the down payment to be approved for a mortgage. That said, depending on where you live in Toronto and the type of dwelling, it could be far cheaper over time to buy a residential property than to rent.

At the same time, you are not paying someone else’s mortgage, meaning that you are contributing to home equity that can be used to fund your retirement, your children’s post-secondary education, or other enormous expenses.

Now, it is also true that renters do not have to bear the plethora of taxes that buyers do, such as the municipal land transfer tax or the HST, or become (directly) vulnerable to rising interest rates.

“While higher interest rates have certainly impacted affordability, the prospect of higher taxes will also hit households’ balance sheets, especially younger buyers with limited savings,” said Toronto Regional Real Estate Board (TRREB) CEO John DiMichele in a report.

Cost of Ownership

Indeed, one of the advantages of renting compared to owning is the amount of savings you can enjoy for monthly expenses.

Renters do not need to worry about replacing appliances, taking care of the property, or even paying renters insurance (though this can vary from property to property). On the other hand, homeowners routinely have monthly expenses that can set them back by vast amounts.

So, by comparison, for owners of condominium suites, there is the condo fee, utilities, property tax, and property insurance. In addition, over the last year, there has been a plethora of reports of condo owners facing sizable special assessments. These are one-time charges applied to all owners. Many older buildings – and, let’s be honest, some of the newer builds – have faced comprehensive infrastructure challenges. With reserve funds insufficient to satisfy these condos’ needs, the associations slap special assessments on unit owners.

For renters, there is the rent and utilities. That is it.

In an environment where the cost of everything has increased significantly, renters can find considerable savings by not having to maintain their properties regularly and pay out of pocket to replace a broken refrigerator.

Flexibility Versus Responsibility

Renters enjoy something that owners do not: flexibility. Homeowners have a lot more responsibility for owning property, from regular upkeep to unexpected expenses. It is easy for renters to budget since the rent is a fixed monthly cost. Plus, if you wish to relocate to another building or another area of the city, renters can do this once their lease is up. The freedom to move can be quite the luxury for households that might have new employment opportunities or desire a change of scenery.

Who Has the Advantage? Buyers or Renters

A core component of the Canadian Dream has been homeownership. The idea of owning your own home while building equity to fund your retirement or children’s education is an appealing one.

Is this an outdated concept? Not necessarily, but accomplishing this objective will depend on where you live, household income, interest rates, public policy, and the broader Canadian real estate market. From a long-term perspective, homeownership is superior to renting because home prices generally trend higher over time, and, as a result, your equity grows over time. In the short term, it can be advantageous to rent, wait out the market, and wait for the right opportunity.

Ultimately, the renting versus owning debate boils down to personal circumstances and overall economic conditions.