Housing Crisis: RBC Warns of Widening Wealth Gap in Canada

In a recent report released by the Royal Bank of Canada (RBC), concerns over the growing wealth divide between renters and homeowners in Canada’s housing market have been highlighted.

The report, authored by RBC economist Carrie Freestone, sheds light on the widening gap between these two groups, attributing it to persistent unaffordability in the housing market.

According to Freestone, Canadian renters are facing greater financial pressure compared to homeowners, making the dream of home ownership increasingly distant for many. The report points out that the third quarter of 2023 marked a pivotal moment, with both renters and homeowners experiencing declines in net wealth.

However, renters have been hit particularly hard, with a notable decrease in the value of their financial assets. The report reveals that renters are spending more than they earn, with expenditures exceeding income by almost nine percent in 2023. In contrast, homeowners are saving seven percent of their earnings.

One of the key factors driving this disparity is the rising housing costs. While both renters and homeowners have seen similar increases in income since the late 1990s, the proportion of income allocated to housing costs has surged for renters. In 1999, renters allocated 25 percent of their income to housing, compared to 23 percent for homeowners. By 2022, renters were allocating 29 percent of their income to housing, while homeowners allocated only 21 percent.

This trend is limiting renters’ ability to save for a down payment, hindering their path to homeownership—a traditional avenue for wealth accumulation in Canada. The report warns that this could exacerbate inequality in the long term.

Additionally, inflation and higher debt-servicing costs are further impeding renters’ ability to save for homeownership. The report suggests that unless ownership affordability improves, renting may become the default choice for middle- and upper-income earners.

Freestone emphasizes that homeownership is increasingly linked to inheritance or wealth transfer rather than household income. As a result, some Canadians may struggle to achieve their savings goals without alternative avenues for wealth accumulation.

The RBC report underscores the urgent need to address Canada’s housing crisis to mitigate the risk of widening inequality between renters and homeowners.