career.
Better Labour Mobility
When you choose to be a renter, you’re improving your odds of finding a better job, one that might pay more and offer better career prospects. Why? Because you can cast a wider net in your job hunt, considering more jobs in more places. When you’re renting, it’s easier for you to move for work, and the cost of moving is significantly less. Owning a home raises the cost of moving (in the form of high transaction costs), significantly increases the amount of time it takes to move, and reduces the likelihood you’ll consider jobs in other cities or countries … or even on the far side of the city you live in, if it’s a large city with long commute times. Toronto, Vancouver, Montreal, Ottawa, and Calgary have regularly featured on the list of the twenty most congested cities in North America.
Labour mobility is particularly important early in a career, when you’re trying to establish yourself and haven’t necessarily narrowed down the focus of your work. Finding the right job opportunity early on can radically change your career path and provide exciting and interesting work. Renting allows you to cast the widest net you possibly can as you look to build your career.
You Don’t Own Your Place
Saying that it’s a good thing that renters don’t own their homes might seem a little obvious and also a little counterintuitive. After all, the cult of “Why Rent When You Can Buy?” has so thoroughly convinced most people that owning is not just a good thing, but the only way to live. But the truth is, owning is by no means the only way, let alone the best way.
Not owning means you don’t own the responsibility and risk.
In discussions of the virtues of owning, a lot of the responsibility and risk of owning a home gets lost. Some problems with homes end up costing owners money, and often it’s a lot of money. Other problems end up consuming a lot of time. Still others are things we can’t do much about, but they irritate us. Even when nothing is going wrong, there is a certain cost related to the responsibility of ownership. Owning a home means spending time managing the home. Making sure the mortgage payments are made on time and that the property taxes are paid. Trying to figure out why the toilet isn’t working properly or what that smell is.
If you rent your home, whether it’s an apartment, townhouse, or single-family home, not owning means that you don’t own the responsibility and risk of owning the home. If it turns out there is a problem with your home, like asbestos insulation, a noisy neighbour, a new garbage dump that’s opened nearby, or a tall building that’s been built across the street that entirely blocks your view (and all the sunlight!), you don’t own that problem. What if the biggest employer in town closes down? That might make house prices fall as a lot of people lose their jobs.
Not owning can be a great thing. Don’t like the way the neighbourhood is changing? Move. Want to be closer to the waterfront? Move. Have you decided to travel the world for a year? No problem. Move your belongings into a rented storage locker and hit the road!
A lot of people feel the stress of owing a lot of money in the form of a mortgage and worry about whether they’ll be able to continue to make their mortgage payments. The alternative is ugly — defaulting on a mortgage can mean huge costs. You could lose your entire down payment to things like transaction costs on the sale and legal bills, or, even worse, you could end up in bankruptcy.
When you rent, you leave all of those worries to the landlord.
All right, Alex. That all sounds great, you say. But isn’t renting still just paying someone else’s mortgage? You’re still throwing away all that money on rent, and at the end of the day you have nothing left to show for it.
Actually, everyone is paying rent, all the time. There are no exceptions. We’re all “throwing away our money on rent.” And that might actually be the best reason of all to choose renting.
CHAPTER 4
Rent — Something Everyone Pays. Always.
The backbone of the argument most people use to “prove” owning is better than renting is that to pay rent is to throw your money away. That a renter is simply paying the mortgage of the owner of the property.
While this argument seems logical and is intuitively appealing, it’s an over-simplification that ignores two important factors: 1) the owner of the property has invested money into owning the property and is taking on the risk of the property going up or down in value; and 2) everyone who lives in a house (or mobile home or recreational vehicle or tent) is paying rent. Always.
That second point might seem like a ridiculous statement, so let me clarify what I mean. The word rent is defined as money paid for the use of something. For housing, rent is what is paid for accommodation — which can be an apartment, a house, or any other form of accommodation. However, any payment should be considered a rent payment if there is 1) a use or service provided in exchange for the payment; and 2) there is no remaining value after the rental period expires.
The most common rent that everyone is familiar with is the rent that a renter pays to a landlord. The renter signs a lease and agrees to pay a set amount of rent each month, and when the lease is over, the renter leaves with nothing remaining. This type of arrangement clearly qualifies as rent.
But there are three other forms of housing rent: one we’re all familiar with, although we don’t usually refer to it as rent, second, the routine expenses that apply only to homeowners, that might not be considered rent, and third, another you might be less familiar with.
The first of these other forms of rent is the “rent” that a homebuyer pays to a bank when they borrow money to buy a home. The money borrowed is, of course, a mortgage, and the money paid in exchange for the use of that money, interest, is in fact rent. The homebuyer is paying rent for the use of the bank’s money over a period of time. The homebuyer then uses the money borrowed through a mortgage to buy a house — which means the rent they are paying to borrow the money is actually rent they are paying to occupy the home.
Every mortgage has an interest rate, which determines the amount of rent/interest the borrower pays to the bank each month, and there is also a principal payment. The principal payment is part of a mortgage payment that reduces the amount owing, and after many, many payments, eventually the principal payments reduce the mortgage balance to zero. The principal portion that reduces the balance is not “rent,” but a reduction to the service the bank is providing to the borrower. Reducing the principal owing on a mortgage is kind of like shrinking a full cable package until eventually you cancel all together. Once the mortgage is paid off, the rent (interest payments) stops, and the borrower no longer enjoys the use of the bank’s money.
The interest payment is a part of the rent a homeowner pays, but it’s not all of the rent. To figure out what the other rents are, let’s look at all the other payments renters and owners have to pay to live in a home.
Renters usually pay a specific amount of rent, but they also sometimes pay some of the utilities and other costs. The total of these payments should be considered the total rent.
For owners, the rent payments start with the interest portion of the mortgage payment. We can add to that the second type of rents we’ll refer to as non-interest rents, including all the other regular costs of owning a home. These include property taxes, because property taxes are payable every month, and they are meant to be payments to the municipal government for things like schools, public hospitals, highways and roads, sewers, and other infrastructure services. Homeowners are required to continue to
