Unlike the rest of my family, I’ve always been a renter, and because we’re all surrounded by cultural programming that drums it into our heads that it’s better to own than to rent (“Pay yourself first!”, etc.), I’ve always felt a little bad about it. So a few years ago, when mortgage insanity was at its height and interest rates were bottoming out, I did poke around a house or two and looked into what kind of mortgage I could get. I didn’t take the plunge then, and what I’ve been learning since then makes me feel a whole lot better about the whole thing. In Windsor, renting is a perfectly good deal, and if I lived in a hotter real estate market, it would be much better still.

In a recent article from the Toronto Star, Susan Pigg asks a pertinent question in these troubled economic times: is home ownership really a smart investment? She uses the example of a Toronto home purchased in 1906 for $1,200 which just sold for an astonishing $825,000. Adjusted for inflation, this represents an average gain of 3.9 percent – and from 1947 onward, just 2.3 percent (again, inflation-adjusted). This notably underperforms the stock market over the same time period, even with all its ups and downs. The difference would be even more stark were it not for the recent astonishing run-up of prices in Toronto and other Canadian markets (not Windsor, as far as I know), doubling over the past ten years. Nor does it take into account the necessary expenses of maintaining a place to live:

“A house is not a good investment, it is a roof over your head,” says James McKellar, director of the real estate and infrastructure program at York University’s Schulich School of Business. … Studies have shown that it’s $800 a month cheaper to rent a 1,000-square-foot home than to own it, he notes. “By any empirical study, houses do not inflate. They are a cost. But we all have to live somewhere.”

There’s more to this than just our individual choices to buy or rent. According to this article from The Economist, Canada is one of a number of advanced countries in the midst, or perhaps approaching the end, of a serious housing bubble. In Canada, the magazine calculates that the ratio of housing prices versus income is running 29% above its long-term (since 1975) average, while the ratio of housing prices versus rents is an astonishing 71% above its long-term average. Reality has to catch up sooner or later: when people start to realize that no one will pay the additional premium that gives their “investment” its notional value, the market will revert to the mean. Price discovery takes over, and a lot of people’s seeming equity will transform overnight into unserviceable debt, just as we’ve seen in the United States, Ireland and elsewhere. As a country, much of the wealth we think we have will turn out to be just an artifact of collectively pretending that an expense is really an investment. This has ominous implications for our economic future, and for the lives of millions of Canadians.