Re/Max survey findings
The survey portion of Re/Max’s 2021 Housing Affordability Report, based on an online poll of 1,539 Canadians, found homebuyers face a growing number of challenges affording houses of their own.
More than a quarter of respondents, 26%, blame a shortfall in salary for their personal inability to buy. Fear of being house poor (18%) and eventually having to pay higher interest rates (18%) were also top concerns. A lack of steady employment (16%), already high household debt (11%) and the mortgage stress test (11%) are also seen as obstacles by those surveyed.
The 41% of survey participants who cannot afford home ownership share several traits: 60% are aged 18-34, placing them in what has traditionally been a lower-earning demographic; 48% of them live in urban areas, where rents tend to be higher and can erode savings; and 70% of them earn less than $40,000 a year.
A combination of necessity, desperation and ingenuity inspired 33% of those surveyed to look for alternative means of securing a property. A sizable percentage (21%) have explored the idea of renting part of their primary residence, while 13% are considering pooling their finances with friends or family, and another 7% are thinking about living with neighbours in a co-op or shared-living arrangement.
“Creative solutions to achieve affordable home ownership will only take us so far, as will ‘stop-gap’ measures such as the mortgage stress test,” says Christopher Alexander, chief strategy officer and executive vice-president at Re/Max of Ontario-Atlantic Canada. “It shouldn’t be the burden of the next generation of homebuyers to figure out how to ‘get around’ the supply shortage and resulting affordability crisis when there are feasible, long-term solutions within reach.”
But just how feasible are these workarounds, especially for inexperienced first-time homebuyers?
How much home can you afford?
Renting out part of a primary residence
Of the three alternatives homebuyers appear to be trying, going the investor route and finding a tenant for part of your home once you buy it is the most straightforward. Renting out a room, à la Airbnb, or a basement suite on a longer-term lease can certainly make covering your mortgage payments easier, but it’s not quite so simple.
The main problem with this strategy is that you need to buy a home before you can put it into practice. For that, you’ll need to convince someone to give you a mortgage.
Lenders will certainly consider the rental income your property will generate when determining how much they'll lend you, but most will want assurances that your rental unit is legal. A spare room may not qualify, and even the income produced by a legal basement suite isn’t always a game-changer.
Assuming you get into a home and rent part of it out, you still need to do it properly.
“You want to make sure that you’re renting to quality tenants who are qualified financially. Make sure you understand the Landlord Tenant Act. You have to also make sure you’re filing your taxes correctly, because if you’re generating income from your property you have to report it as income,” Alexander tells Money.ca.
“You’re going to need tenant insurance as well, and have a good insurance policy for yourself, too.”
Purchasing with friends or family
Not everyone has parents who can — or want to — gift them the funds for a down payment. In such cases, co-ownership with family or friends might be a more appealing choice.
Providing half, or a third, of a down payment certainly sounds easier than cobbling together the whole thing. But anytime a property has multiple names on a title, and they aren’t spouses or immediate relatives like parents and children, things could go sideways if one owner’s desires or financial situation changes.
“As long as you’re documented and you’ve got good lawyers, it wouldn’t be that messy. You just have to be aware that there could be land transfer taxes to be paid if you’re going to sever title,” Alexander says.
“If you’re not going to be on title, you want to have a clear partnership agreement with whoever you’re buying with so that in the event of a sale, the proceeds will come to you as they were set out in the agreement.”
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'Owning' part of a housing co-operative
Re/Max’s report doesn’t go into much detail where co-ops are concerned. Assuming that it’s a traditional co-operative, it’s an odd choice for anyone trying to crack the housing market.
You don’t really buy a co-op, you buy into one. Typically, you purchase a share in a corporation that owns a property, and are then granted exclusive use of one of its units. In some co-ops, you may not even build any equity while you possess your share because the building is leased, not owned, by the corporation.
If you're up for an unconventional housing situation with more of a social aspect, a co-op may be for you. Still, the communal nature of the purchase shouldn’t prevent you from carefully reviewing whatever documents you’re asked to sign.
“You have to use extreme caution and make sure that you are buttoned-up as far as an agreement is concerned with the co-op,” Alexander says, “because there’s a lot more moving parts when you have an arrangement like that. My advice would be to make sure you have a very good co-op or partnership agreement that protects you in the event of a falling out with the other ownership groups.”
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