Home ownership still the best investment

Canadian renters face a "daunting challenge" trying to match the wealth accumulated by home owners, according to a Sauder School of Business study at the University of B.C.

It's possible, the study said, but requires a level of investment discipline and sophistication rarely seen in North America.

"You can do it if you're a renter but you'd need to be a phenomenal investor and 98 per cent of us are not," said UBC professor Tsur Somerville, the study's lead author.

The study examines the wealth homeowners can achieve by paying down a mortgage and what a renter can amass by investing the difference between owner and renter costs, along with the amount equal to a home down payment.

The study looked at data from 1979 through 2006 and found that in Vancouver, the most investment-savvy renters could have matched the wealth gains reaped by homeowners. High mortgage payments and comparatively lower rents make that situation possible.

That best-case scenario requires renters to invest 100 per cent of the difference between owner and renter payments in the Toronto Stock Exchange and pay very low investment management fees.

Under the same scenario, renters in Edmonton, Halifax, Montreal and Regina could accumulate up to 20 per cent more wealth than home buyers. But renters in Calgary and Toronto could not match the wealth gained by homeowners in those markets.

Somerville said home ownership and renting both have their own particular non-monetary advantages. Owning a property means never having to worry about eviction and being able to do what you want with it; renting can offer greater mobility and a more diversified investment portfolio.

Somerville said the capital-gains-tax exemption makes home ownership more advantageous, along with the forced-savings aspect of mortgage payments.

"In my view, that's the biggest advantage of home ownership," he said. "Mortgages force you to save and people really go the extra mile to make their mortgage payments."

Somerville expects the home-ownership investment advantage will continue in the future, despite fears of an oversupply situation caused by dying baby boomers flooding the market with properties for sale.

"You'll still have the kids of the boomers looking for homes and immigration [boosting housing demand]," he said. "Vancouver is a place where people want to move so it's hard to imagine the circumstances where home ownership suddenly becomes unappealing and investing in the TSE becomes more appealing.

"If lots of bad things happen that somehow make Vancouver unattractive, bad things are probably happening to the stock exchange, too."

(prepared by Bruce Constantineau/Vancouver Sun)