In Canada, immigration and shifts in the capital markets are transforming the traditional dream of home ownership.

Given these trends, some Canadian observers are asking: Are we becoming a nation of renters? 

Many Canadians and Americans have long believed that fulfillment of life’s goals centered on home ownership. Whether a suburban house in Victoria, a cottage in the countryside, or a downtown Toronto condominium surrounded by sophisticated entertainment options, Canadians saw a home in their future.

Unaffordable prices, limited supply and escalating interest rates were not part of the dream. As a result, many Canadians are changing their views on home ownership, especially younger city residents.

From one perspective, the trend is not surprising. Canada’s population has been increasing rapidly, and the supply of affordable homes has not kept pace. In addition, many affluent nations have long had high proportions of renters. In Germany, Austria and Switzerland, more than half of the population rents.

This seems natural in places with greater population density and urban designs that were planned centuries ago. But for the world’s second-largest country by land area, population density seems like an unexpected issue.

The reality, as we know, is that most Canadians live not far from the southern border, in or near metropolitan areas. In these places, competition for limited supply can be fierce. Even now, roughly half of all residents rent in Canada’s largest cities. The figure is about one-third nationwide, but that number is rising fast. In the regions of the country with the warmest winters (southern Ontario and Southwestern British Columbia), there are green belt restrictions on farm lands which now constrain horizontal expansion of cities. This fact is not always apparent to those outside the real estate industry.

“There have never been so many renters in Canada,” concluded a report by RBC Economics, which estimated that there were 5 million renting households in 2021, up from 4.1 million a decade ago. This trend predates both the pandemic and the Bank of Canada’s policy shift toward higher interest rates.

There is a demographic dimension to these changes, as well. “Millennials are lingering in renter-ship three to five years longer than their baby boomer counterparts,” according to RBC Economics. But rental rates are rising among baby boomers, too. Many have become empty nesters who seek to downsize. Increasing numbers of seniors are living alone, and don’t want the burden of maintaining a house and carrying a mortgage.

Of course, renting has its own set of frustrations. The limited supply of housing nationwide has put upward pressure on rents, as Canadians who cannot afford to buy a home compete for available rental units.

Those who lease face the prospect of a substantial annual rent increase, even in areas with rent control ordinances. Rents have risen significantly in Toronto and rent-controlled Vancouver, but also in many smaller markets. Apart from paying more each year, there is also the uncertainty generated by loopholes in tenant protection laws that can lead to loss of housing, as with so-called “renovictions.” 

Some of the variables putting upward pressure on rents are recent phenomena. For example, many landlords prefer to rent out units on Airbnb rather than lease to long-term residents. Rising immigration also plays a role, as new arrivals to Canada typically rent in high proportions.

Looking over the horizon, RBC Economics predicts: “Burgeoning rentership will put tremendous pressure on our rental stock — already stretched and inadequate in many parts of the country. We’ll need to build more rental units. A lot more. And they’ll have to be the right kinds of units to meet the population’s increasingly diverse needs and income levels. This includes rental options suitable for families — that is, in neighborhoods close to schools and other amenities.”

Among the Sherlock Holmes short story canon, one of the most memorable clues is “the dog that didn’t bark.” As a thief escaped with a prized horse in The Adventure of Silver Blaze, an ordinarily alert guard dog remained docile. The case was cracked not by obvious tangible evidence, but by the absence of evidence.

A similar mystery has been unfolding in the North American housing market, at least since the days of the pandemic. 

In Canada and the U.S., central banks’ strategy of raising interest rates has caused mortgage rates to spike. In a normal market, the chain of events set in motion by these hikes would be predictable: As mortgages became less affordable, fewer prospective homebuyers would remain in the market. With a smaller pool of buyers, there would suddenly be less competition for homes. With less competition, sellers would need to reduce prices to find willing buyers.

But something happened along the way, especially in major urban markets across North America. In many desirable regions, prices have moderated but not dropped substantially. This has had the effect of continuing to deny many families access to affordable housing.  

Forecasters didn’t notice the curiously nonplussed canine on the scene. In this case, the absence of evidence has been the low levels of sales activity for existing homes. The reason is elemental: Homeowners are reluctant to sell their properties knowing that they will need to take on a much more costly mortgage for a new residence once they sell. 

Millions of homeowners in Canada and the U.S. locked in rock-bottom mortgage rates in earlier years. Now they logically ask themselves: Why sell a house with an affordable mortgage to buy a new house that comes with a much higher monthly payment?

This has spillover effects in the rental market, as well. With large numbers of Canadians unable to access home ownership, rental units fill up fast, which sends rents soaring. High interest rates also mean higher construction financing costs, which slows the construction of new apartment complexes.

The Bank of Canada overnight interest rate is 5 per cent, its highest level in more than 20 years. That’s a substantial increase from the 0.25 per cent benchmark rate of early 2022. Despite the interest rate escalation, high prices have proven resistant to lower demand. With homeowners holding on to their houses and condos, there are still too few units to go around, even with smaller numbers of prospective buyers.

When prices do dip, the slightly improved affordability seems to be temporary. New buyers come off the sidelines, fearing that prices will soon soar once again. That assumption makes sense, at least in the short-term. In the Montreal region, for example, the brokerage firm Royal LePage is projecting that the aggregate price of a home in the metro area will have risen 8 per cent to $587,844 by the end of this year, compared with 2022.

Considering that Canadians carry the highest household debt loads of any G7 country, this chronic imbalance can be expected to put tremendous strains on the overall economy. Earlier this year, household debt in Quebec was 169 per cent of disposable income and 218 per cent in Ontario, according to Statistics Canada.

Beyond the rows of statistics, the nation’s housing crisis is a very personal financial ordeal for millions of Canadians, especially those with variable-rate mortgages. These rates are likely to adjust upward sooner than many new homeowners expect, cratering budgets and deferring dreams.

As an observer of real estate markets and trends here and around the world, I have been working for decades to find innovative solutions to the North American housing crisis. The key is matching people with affordable housing, broadening access and dramatically improving affordability.

I believe implementing the concept of “shared equity” is a practical way to help achieve these goals. This idea is rooted in research I began in the wake of the 2008-2009 financial crisis.

During this period, I traveled the world, living and working in countries from Asia to Eastern Europe, studying mortgages and markets on-site and in real time. I analyzed housing policies in light of the particular culture, traditions and economies of each region. I learned what works and what doesn’t.

In 2020 I outlined the idea of shared equity in a book I co-authored with Patricia Nicholson, A House Shared. More on that later.

There are several factors that make shared equity a financially and socially attractive concept. The idea is that a home buyer starts with a small deposit or down payment, ideally one per cent. The buyer does not need to qualify for a mortgage up front, but instead is matched with a home where the monthly payment is comfortable for the family’s income level.

The buyer shares in the equity growth in the home from the price appreciation. The exact per cent share of the home equity growth is dependent on the deposit size. Home buyers keep their share of the equity even if they don't end up buying the home.

I believe this idea is sturdy enough to withstand the immense economic and financial forces that are today buffeting the housing market in Canada and the U.S. 

In recent years we have seen institutional investors with tremendous resources buying up single family homes not to house families, but rather to add these dwellings to portfolios. These large investors turn around and rent out the homes, creating a new tenant class of families who in earlier generations would have owned, rather than leased, their residences.

This is happening as interest rates are soaring and available supply is shrinking. In Canada the housing supply is lagging far behind existing and projected needs, and the situation will only get worse as the nation’s population grows. There are few policies in place to address the issue.

In A House Shared, the main characters in our fictional tale find themselves in the middle of these stark realities. The story takes place during a time when families across North America have lost homes, homelessness is out of control, starter homes are out of reach, and a small number of affluent buyers and corporations compete for the best properties.

It’s a Dickensian perspective on the housing crisis, with the ghosts of present unaffordability and future access denied cast in central roles. 

The narrative follows the struggles of a family living a happy and seemingly financially secure life. When misfortune strikes, they find themselves fighting for survival, and fighting against market forces that make eviction seem inevitable, and homelessness a real possibility.

The idea of shared equity is woven through A House Shared, lifting the main characters beyond their circumstances into a life of true financial security. The moral of the story illustrates shared equity’s potential for saving countless families from the risks and anxieties of this same situation.

The ultimate outcome is in keeping with the spirit of Dickens himself, who once wrote: “No one is useless in this world who lightens the burdens of another.”

​Housing affordability is a global problem with deep roots — and few easy solutions.

From the empirical data, and based on our own personal anecdotal observations, we know that the old solutions haven’t worked. The number of homeless continues to rise, inexorably. 

Often the contrast created is jarring: rows of tents pitched in the shadow of some of the world’s wealthiest corporations in San Francisco, or within sight of the U.S. Federal Reserve building in Washington, where the world’s most immense money supply is managed.

A few rungs up the economic ladder, families find themselves locked out of the housing market. Interest rates are high, lending standards are tight, and supply is limited. Millions of people live far from their jobs, commuting hours each day from distant places where affordability hasn’t yet become a memory.

As a real estate investor who has traveled the world in search of practical solutions, I know that the problem must be approached from a variety of angles and perspectives. That is why in addition to promoting an innovative new financing model for home ownership — shared equity — I have also been involved in charitable efforts to house families in need throughout our hemisphere.

My academic research on this topic began in earnest in the wake of the 2008-09 financial crisis. At that time it became obvious to everyone that the existing housing model was broken. Assumptions had been faulty, and the whole underlying foundation was shaky. Every economist and policy maker in the world got an astonishing glimpse into the great damage mistakes in housing policy could do to the wider economy and society. 

During this period I lived and worked in several world capitals, analyzing their housing policies and markets; examining what worked and what did not. I studied the interplay of housing policy, economics and culture, and took away some important lessons for North American communities. I began to refine the concept of shared equity, which I later described in a book I co-authored with Patricia Nicholson, A House Shared.

Programs based on the idea of shared equity can significantly improve affordability and broaden accessibility. Using this model of home ownership, a buyer starts with a small deposit or down payment, ideally one percent. The home buyer does not need to qualify for a mortgage up front. The buyer is matched with a home where the monthly payment is comfortable for the family's income level. The buyer shares in the equity growth in the home from the price appreciation. Home buyers keep their share of the equity even if they don’t end up buying the home.

This is an effective solution for the middle class, for families just starting out, and for individuals who do not metaphorically check all of the credit and income boxes on a bank’s loan form.

Meanwhile, we need to do much more to help those living in desperate situations. I am an enthusiastic supporter of charities focused on these needs. I donate time and resources to The Silhouette Foundation, which most recently helped coordinate relief efforts in the wake of natural disasters in Haiti; and to the Our Place Society, which is devoted to helping people in my local community of Victoria, British Columbia, especially the working poor, the impoverished elderly, the mentally and physically challenged, and the homeless. 

Also in the community, I have advised the Greater Victoria Housing Society in its $2 million dollar acquisition of an apartment building that became part of the Society’s affordable rental program, which provides long-term housing to those most in need.

Each piece is essential if we are to solve this puzzle. For the unsheltered, we must work with organizations, governments and generous volunteers to implement programs that achieve lasting results. For individuals and families in the lower to middle range of the economic spectrum, we must not be afraid to innovate, and to acknowledge the failings of our current housing model. This is where shared equity is such a powerful idea, one with a tremendous potential to transform lives and communities across the globe.