There is a personal finance rule that average earners spend mindlessly paying the average rent in their city.

According to this rule, the monthly rental costs must not represent more than 30% of the gross salary. In Vancouver, the average rent and average income level gives us a rent-to-income ratio of 53%. In Toronto, the ratio is 48%. In Halifax, 40%.

Rents are one of the big stories of the growing affordability of living your life in 2022. Can we suspend our obsession with home and condo affordability long enough to tackle this more worrisome issue?

Rents are skyrocketing. What does this mean for Millennials and Gen Z?

Unaffordable rent cripples people financially by limiting their upward mobility and resilience. Between rent and the rising cost of everyday purchases, including food and fuel, there’s not much left to save for short-term purposes like an emergency fund or long-term goals like retirement. .

Add down payments on the house to the list of unattainable goals for people stuck with high rents. Without parental subsidies, it could take decades to save a down payment so nearly half your salary covers the rent. Eventually, we may face a shortage of young adults ready and able to buy homes.

Solutions to high rents are to find a roommate, rent in the boonies, or move back in with your parents. But ideally, you want to step forward as a young adult entering the workforce, not back to your youthful life.

To assess rental affordability, I looked at the Vancouver, Calgary, Toronto, Montreal and Halifax markets using data for one-bedroom units on Rentals.ca and 2020 income figures from Statistics Canada. for adults. Income data has been updated to 2022 levels assuming a total increase of 7%.

As with homes, Calgary is an affordable oasis for renters. Based on an average July rent of $1,583 and an estimated average income of $62,595, the rent-to-income ratio is 30%. Montreal’s rent-to-income ratio was 35%, a win in today’s market.

And then things fall apart. Vancouver has an average bedroom rental cost of $2,500 and an estimated average income of $56,282. That’s where the out-of-sight 53% rent-to-income ratio comes from. (To calculate the rent-to-income ratio, multiply the monthly rent by 1200 and divide by the annual income.)

Toronto was a little less unaffordable thanks to slightly lower average rents. The average rent in Halifax was a reasonable $1,648, but the average income for the Atlantic provinces (Halifax-specific figures were not broken down) was the lowest of the bunch at $49,220.

Mathematically, one solution to the rent affordability problem is to get a two-bedroom unit with a roommate or partner. Rentals.ca says the average rent for a two-bedroom room in Toronto was $3,259 in July – apply two city average salaries to that cost and you get a rent-to-income ratio for each roommate of 35%. Again, it’s a winner in today’s rental market.

Moving further could also help with affordability. The average one-bedroom rent in Hamilton, just east of Toronto, is 25% cheaper at $1,694.

A fascinating development in housing this year is the duel between owning and renting for the most financially toxic title. Rising mortgage rates increase homeowner payments, either immediately in the case of certain variable rate mortgages, or eventually in the case of fixed rate mortgages and other variable rate mortgages.

In the meantime, the pandemic rent chill is all but over. Rentals.ca calculates a Canada-wide average increase of 10.7% in one bedroom rents in July compared to the previous year. The average increase was 14.4% in Vancouver, 21.6% in Toronto, 27% in Calgary, 8.9% in Montreal and 4.6% in Halifax.

The 30% rule needs to be refined in this environment. Let’s raise the maximum to 35%, call that an ideal goal, and recognize that many people will be at a much higher number than that through no fault of their own. The only way out of this box may be cohabitation.


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