519-646-2222Buying a House is Insanity
The idea of buying a house is literally financial insanity. Looking back through history, people never truly owned property or houses in the way we think of ownership today. Land was granted by the Crown, usually in exchange for some form of service or loyalty. At the Crown’s pleasure the land might remain in the family, but it was never absolute ownership. As new lands were settled, the Crown became more liberal with these grants, allowing its citizens to stake claims to measured and surveyed parcels of land in order to displace Indigenous people and prevent rival nations from taking control.
As empires grew they became too difficult to manage, eventually collapsing and giving way to new rulers, often in the form of elected officials. These new governments enacted laws to regulate the registration and transaction of land. Canada once used a paper-based land registry system, but that has since been replaced by electronic registrations. Even today, around 90% of Canadian land is still Crown land—belonging to the state. Only a small percentage is privately owned, and even then ownership is subject to an extraordinary number of restrictions. You cannot build without a permit. You can only build what is approved by multiple authorities and standards boards. The government dictates land use in minute detail, including restrictions on something as simple as the removal of dead lumber. You must comply with municipal bylaws for every activity on your property, and you must endure endless taxation for the so-called privilege of ownership. In effect, land ownership in Canada is another form of slavery to the state. You must obey.
The rules extend far beyond land itself. Canada has laws to regulate nearly everything people do. While these are often presented as serving protection, equity, or the common good, in practice they are more often instruments of control. Buying a home, the single largest purchase most people will ever make, is wrapped in these layers of obligation. For the majority of buyers, it requires financing through a mortgage. Many people believe this makes them investors in real estate, but in truth it is the mortgagee—the bank—who is the investor. Real investment involves expecting a return. Buying a house instead makes you the holder of a massive liability, one you pay for over and over again. Beyond the purchase price, there is interest on the loan, mandatory mortgage insurance premiums, property insurance, taxes, ongoing maintenance, permits, licenses, mortgage fees, legal fees, real estate commissions, and more.
When I studied real estate years ago, I was told that the average Canadian homeowner sells their home every four years. That statistic can be used to test assumptions. Twenty-five years ago, the average house price was $163,951. Five years later it was $243,000. By 2010 it had reached $345,000, then $439,589 in 2015, and by 2020 the average was $586,000. With each transaction, the costs of selling compound the burden. The average real estate commission according to CREA is 5%, plus HST of 13%, and average legal fees for buying and selling are around $3,500. Taken together, these selling costs alone add roughly $108,000 to the so-called “debt ditch” created by the illusion of wealth that comes with homeownership.
Consider another example. If you bought a house fifteen years ago for $500,000 and sold it today for $700,000, you would be in the hole by $5,000 just based on inflation. Housing prices in Canada have been artificially inflated for decades, and in the past five years alone they have doubled or even tripled in some markets. Buying a house in Canada is, at least until there is a major correction, pure insanity. The numbers simply don’t work. The median income in Canada still has not reached $45,000 a year before taxes. Meanwhile, the average house price in Ontario is about $840,000, which is roughly twenty-eight times the median disposable income after tax.
Ratehub’s mortgage calculator offers a sobering scenario. With a gross income of $45,000 per year and a $30,000 down payment—more than half of which disappears into CMHC insurance and legal fees—you could buy a house worth $420,093. That would leave you carrying a $405,477 mortgage at 4.04% interest, with monthly payments of $1,942. With a monthly net income of $3,020, you would have only $1,078 left to cover every other living expense. That means 64% of your after-tax income would be consumed just to keep a roof over your head. That is insanity.