Homeownership is more than just shelter

Much has been said about the value of homeownership as a means of satisfying important shelter considerations and lifestyle choices, as well as helping stabilize a neighbourhood that may becoming increasingly transient in its make-up. 

In recent years of robust MLS® sales and prices rising upward (see accompanying chart), more thought and study is now going considering homeownership as an investment vehicle and contributor to household wealth. 

For example, the May 2003 TD Bank Financial Group report, Profiting from Home Ownership (www.td.com/ economics), has a main premise that real estate has been one of the best performing financial assets in recent years. As a result, a home, which is the largest financial asset for many Canadians, has been instrumental in offsetting the 

negative impact of losses in the equity 


“To put the importance of real estate into perspective,” according to the report, “land and structures represented 35 per cent of total household assets in 2001. This far exceeded life insurance and pensions (23 per cent); mutual funds, bonds and shares (18 per cent); cash and bank deposits (14 per cent) and other assets (10 per cent).”

Real estate’s prominent position as a major asset becomes more significant because it is outperforming other investments such money market instruments and bonds. While nothing lasts forever, it is inevitable that the equity market, due to a greater risk premium, will provide a better long-run return than real estate.

The paper cites other advantages to homeownership:

• No taxes on capital gains from the sale of a principal residence.

• Smart selection of a good property in a desirable area can realize a better return than the national average.


Homeownership does deliver an essential service in the form of shelter.

It can provide a source of diversification in one’s total investment portfolio, especially during the less favourable conditions that the financial markets have experienced in the new millennium.

Owning a home requires that the vast majority of home buyers take out a mortgage, and while mortgage interest is an expenditure, the principal payments can be seen as a forced savings plan and will add to the householder’s net worth. In contrast, rent paid to a landlord is an expenditure. Building up equity by paying down the principal has also allowed Canadians to finance investments and improvements in their home which, in turn, can realize a higher price when the property is sold. The economy as a whole has benefited since spending on residential investment and home repairs contributed $73.3 billion to the Canadian economy in 2002.

The TD report indicated that, despite house price increases, homeownership still remains affordable  due to the availability of mortgage rates at the lowest level in over 40 years. It has also meant that relative to renting the cost of owning has fallen over the last decade.

While the report looked ahead to 2004 with more caution than what has actually happened to-date (e.g., double-digit MLS® price increases), it makes an interesting observation. Some real estate investors may be getting more nervous about the big run-up in prices and the risk going forward, but it said: “the low inflation, low interest rate environment created by the Bank of Canada has changed the dynamic of housing markets.

“By lowering the volatility in mortgage rates, it has reduced the risks of housing boom-bust cycles that characterized the past.”

All of these positive attributes surrounding homeownership have not been lost on the Canadian public. Canada Mortgage and Housing Corporation reported that 65.8 per cent of Canadians owned homes in 2001, up from 63.6 per cent five years earlier. Given the high level of MLS® market activity that has occurred since 2001, the percentage of homeownership will surely be higher. And, based on the TD analysis, homeowners should be faced with more stable housing markets in the future.