Many young Canadians face challenges in affording a home, but instead of dwelling on frustrations, they can explore other ways to grow their wealth.
Shen, who worked in the tech industry in her late twenties, felt societal pressure to buy a home. However, after witnessing a colleague suffer a severe health crisis from overwork following the 2008 financial crash, her priorities shifted. She decided she didn’t want to work until 65 just to pay off a large mortgage. Instead, she focused on achieving financial independence.
“Rather than using my savings for a down payment, I invested it in a portfolio of index funds, which grew over time,” Shen explained. By age 32, she and her husband had saved $1 million, allowing them to retire early and travel the world.
Rethinking Homeownership
For Shen, the financial logic of homeownership didn’t add up — a sentiment shared by many young Canadians today.
“We need to create a new rulebook,” Shen said. “Our parents could afford homes that cost only two to three times their annual salary. Now, people are trying to buy homes that cost 20 times their yearly earnings. It just doesn’t make sense.”
Jason Heath, managing director and certified financial planner at Objective Financial Partners Inc., believes there has been too much focus on real estate as the primary way to build wealth. “If you look at the S&P 500 index, it has delivered a 13% annual return over the last decade — significantly higher than real estate appreciation in most parts of Canada,” Heath noted.
From September 2014 to September 2024, Canadian home prices increased at an average annual rate of 6.3%, rising from $399,000 to $713,200. However, over the past year, prices have dropped by 3.3%.
While real estate has performed well for the previous generation, Heath cautions against relying solely on it. “People tend to assume that because something has done well recently, it will continue to do so. I believe the next 25 years could look very different.”
Can Renters Build Wealth?
Heath argues that renters can accumulate as much wealth as homeowners, especially if they invest the savings from lower housing costs. “A disciplined renter who invests in low-cost portfolios and tax-sheltered accounts can achieve similar financial outcomes as homeowners,” he said.
A 2007 study by Tsur Somerville, a professor at the University of British Columbia’s Sauder School of Business, found that homeowners benefit from the “forced savings” of mortgage payments, which helps them build equity. Renters, by contrast, must be diligent savers and invest wisely to match the wealth of homeowners.
For example, in cities with lower rents and slower home price growth, like Edmonton or Halifax, renters who invested consistently could generate 20% more wealth than homeowners. However, in markets like Toronto, where rents are high and home prices rise quickly, renters often struggle to keep up.
Investing Challenges for Millennials
Shen and her husband, both in high-paying tech roles, saved about $500,000 by 2012 through frugal living and prioritizing savings. Their relatively low rent also helped them invest early and benefit from compounding growth.
For other young adults, living with parents and paying little or no rent can provide an opportunity to start investing early. However, renters without family support or high-paying jobs often find it challenging to invest due to limited disposable income.
According to a 2023 Statistics Canada survey, young families who owned their homes saw their median net worth grow to $457,100, an increase of $142,800 since 2019. By comparison, young families who rented saw their net worth rise by just $26,700 to $44,000.
Despite this disparity, an increasing number of renters are building wealth. The survey found that in 2023, 15% of young families who rented and lacked employer pensions had a net worth over $150,000, compared to only 5% in 2019.
Shen, who co-wrote *Quit Like a Millionaire* and runs the Millennial Revolution blog, empathizes with the frustrations of young Canadians. “Instead of sticking to outdated advice from decades ago, I’d encourage people to explore alternative paths to success,” she said.
