You might be hard-pressed to find a single Canadian without an opinion on the rent vs. buy debate when it comes to homeownership. Many of the older generations will argue that buying a home is always the better option, citing that if you rent, you’re paying someone else’s mortgage. But, when we look at the financial side of owning a home today, the reality is much different.
For that reason, looking at the numbers, your lifestyle and considering the emotional side of why we buy homes is important to determine what decision is best for you and your family.
A survey from Mortgage Professionals Canada asked people to rate their confidence in whether buying a home was a good idea in 2021. A 10 (excellent) stated that “now is a good time to buy a home,” whereas a one ranking statement said it is “not at all a good time to buy.” Canadians, on average, ranked 6.04.
How to Decide Whether You Should Rent vs. Buy
Deciding whether you should rent or buy comes down to a few common factors: affordability, lifestyle, and emotions. Each option has its pros and cons.
Renting is one that makes sense for anyone who appreciates flexibility, doesn’t enjoy doing a lot of home maintenance and wants to diversify their investments more widely. Buying makes sense for much of the opposite. If you desire permanence and stability, don’t mind home maintenance and feel the financial investment is worth it, homeownership is a great option.
| Pros of Renting | Cons of Renting |
| Less hassle and expense to maintain More flexibility More access to disposable income | Less control over the length of the lease Bound to the rules within the lease No opportunity to build equity |
| Pros of Buying | Cons of Buying |
| Provides permanence Build equity and capital gains Freedom and privacy to live as you please | More responsibility Potential for loss of value Your asset is tied up in a home and therefore less accessible |
Ultimately, there are a few questions you can ask yourself to make the decision a bit simpler. For instance, how long do you plan to stay in your next home? If you buy, the longer you stay, the better. Statistically, the chance you will return a profit or break even in the sale of your home is slightly higher if you stay put for more than five years.
Another great way to determine whether renting or buying is the right choice is to look at the 5% rule. To see if your rent vs. buy decision plays by this rule, you’ll have to do a calculation of the unrecoverable cost of owning a home. If you own, these expenses should be around 5% of the total value of your home. For example, property taxes account for 1% of the value of your home, and maintenance ranges from 1% to 3% each year.
For that reason, if your annual rent is less than 5% of the cost of a similar home, renting is likely better — mainly if you are investing the difference in savings. But, if your rent is more than 5% of the cost of a similar home, buying is likely a better option.
Rent vs Buy: Using Calgary as a Case Study
To appreciate how this analysis — and real-world math — works, let’s examine the cost of housing in the City of Calgary.
On the whole, it’s 50% more costly to buy a home than rent in Calgary. The average cost of a monthly mortgage across all neighbourhoods is $1,989, assuming you put 20% down on a property. On the other hand, the average cost of rent across all communities is only $1,197.
Considering that 32% of Canadians put less than 10% down on their home, this gap might be even more significant. But, of course, this is averaged out across hundreds of neighbourhoods, which doesn’t always give us a clear answer.
Some quadrants of the city provide are cheaper than others. For example, you can save over $1,600 each month if you opt to rent in the city centre, rather than buy a single-family home. However, if you choose to rent in the northeast of Calgary, you’ll save just over $215 each month — more than a $1,000 per month difference.
Rental Rates and Mortgage Costs
Still, a dollar saved is a dollar saved. If you took that $200 and invested it in equities, this could go a long way to building that foundation of a retirement fund. To illustrate, let’s assume that you invest that $2,400 in housing cost savings for the next 25 years. Assuming an annual growth rate of 8% (compounded annually), your savings would be a whopping $198,235.
This means that rental rates and mortgage costs must be considered when trying to decide whether or not it’s better to rent or buy a home.
Since cost is one of the most critical factors we collected data on the average sale prices for each Calgary neighbourhood between 2018 to 2021. We used this data to examine the growth in value from year to year, as well as a way to calculate the cost of the monthly mortgage payment. To standardize the comparison, we assumed that a buyer would invest 20% of the neighbourhood’s home value as a down payment and used a 25-year amortization and a five-year fixed mortgage rate of 2.5%.
Then, we examined the average rental rates for one-bedroom and two-bedroom apartments for both 2019 and 2020.
We then compared the monthly mortgage payment to the average district rental price to calculate the price difference.
Amenities and Crime
But housing costs are not the only factors that buyers and renters consider when looking for a home. To capture community spirit and neighbourhood desirability, we also looked at the average walk score, transit score, and crime rate for each neighbourhood.
The assumption is the more walkable a community, the easier the access is to public transit and the safer we feel the stronger the pull is to set down roots in that community.
Putting it All Together
Based on this information, we were able to determine the top five best neighbourhoods to rent and the top five best neighbourhoods to buy a house in Calgary.
Top 5 Neighbourhoods to Rent in Calgary
Knowing how much more affordable overall it is to rent vs buy in Calgary, we ranked the top neighbourhoods to look for your next lease if this option is your front runner right now.
Check out the full breakdown of the best neighbourhoods to rent in Calgary.
Top 5 Neighbourhoods to Buy a House in Calgary
Regardless of the financial overview, some neighbourhoods do make sense to buy, mainly if you are interested in the lifestyle of owning and the emotional aspect of finding a permanent place to set down roots. This was primarily the case for 74% of Canadians who say their desire to buy increased after COVID-19 hit.
In that case, here are the top five neighbourhoods you should buy if you’re currently looking for homes for sale in Calgary.
Check out the full breakdown of the best neighbourhoods to buy in Calgary.
How We Analysed Rent vs Buy in Calgary
To determine whether you should rent versus buy in Calgary we examined data for more than 180 neighbourhoods across the city. We started by comparing the average sale price for single-family home from 2018 to 2021. We sourced this data from the Calgary Real Estate Board. Using this data we calculated the one-year price difference between 2020 and 2021, and the three-year price difference between 2018 to 2020. We also used this sales data to calculate the average monthly mortgage assuming a 20% down payment with a five-year fixed mortgage rate of 2.5%, amortized over 25 years.
After reviewing the cost to own, we collected data from the Canadian Housing and Mortgage Corporation (CMHC) to find the cost of rent in each of the city’s communities. We took the average cost of renting a one-bedroom and two-bedroom place in each district using 2019 and 2020 data. Then, we averaged the two prices to get the overall average cost of renting in each neighbourhood.
Then we compared the monthly cost of a mortgage versus rent to determine how much you could save overall. Lastly, we looked at each community’s amenity score and crime rate. This data was sourced from Walk Score and the City of Calgary crime statistics.
The final scores were ranked from one through 100: the higher your score, the better the neighbourhood for either renting or buying in Calgary, Alberta.
Bottom Line: Should You Rent or Buy?
It’s impossible to make a blanket statement about whether or not it’s better to rent vs buy. This decision requires more detail and can change dramatically based on the city, property type, person’s age, income, mindset and goals.
Still, to answer the question — Is it better to rent or buy? — you can use our Calgary analysis as a guide. Compare and contrast the neighbourhoods in any given city, examine your current financial situation and desired lifestyle and objectively determine whether it’s better to rent versus buy a house.
