Housing Market in Canada: How Much Rent Can I Afford?

Many Canadians continued to see their rental prices increase in 2023. The average cost of rent in Canada increased by 12.2% from December 2021 to December 2022, according to the latest 2023 rentals report published by Rentals.ca . This report takes into account all types of properties, from small studios to the largest multi-family units.

Below, I’ll explain how much of your monthly income should be spent on rent and give you some helpful tips on how to stay on top of your budget and calculate how much rent you can afford.

What percentage of my income should be spent on rent?

You should plan to allocate a fixed percentage of your monthly income towards your monthly rental costs. This will help you keep your bills under control and prevent you from falling behind or having to make budget cuts in other essential areas.

Some economists recommend that your rent be no more than 25-35% of your monthly after-tax income. Although rental rates may vary from city to city, you should try to stay within the 25-30% range or less if possible.

This will allow you to allocate the remaining 70-75% of your income to pay for other important things, such as:

• Utility bills
• Transport costs
• Car payments
• grocery stores
• Subscriptions
• Insurance
• Invest
• emergency savings

Calculate the rent you can afford

If you earn a fixed monthly salary, it should be fairly straightforward to work out how much rent you can afford. Here is an example of the rent an average Canadian can afford, based on their monthly income:

Currently, the average rent for a one-bedroom apartment in Canada is $1,714, while the average rent for a two-bedroom apartment is $2,095. According to the “30% rule”, the average Canadian must earn between $5,000 and $6,000 a month just to pay the average rent for a one-bedroom apartment.

For more precise numbers, you can use the free rent affordability calculator from Canada Mortgage and Housing Corporation (CMHC).

Here are the most expensive cities to live in, according to the 2023 National Rent Report presented by Rentals.ca:

Although Toronto recently overtook Vancouver as Canada’s most expensive city, rental rates in Vancouver are still slightly higher than those in Toronto.

Other factors to consider:

While the 30% rule is a good rule of thumb, there are several other factors to consider as well. Here are a few things that could affect your monthly rental budget.

One of the best ways to save money on rent is to live with a roommate or partner who splits the bills and rent with you.

For example, two roommates renting a two-bedroom apartment in Vancouver for $3,562 per month would only have to pay $1,781 each per month. Using the 30% rule, each housemate would need to earn about $5,900 per month, totaling a family income of $11,800 to afford a nice apartment together.

Roommates can also share utilities such as electricity, water and internet bills, which can further reduce the cost of living.

Generally speaking, the rent increases as you get closer to major urban centers. However, the financial opportunities also increase the closer an individual gets to a major city.

From restaurant and hospitality jobs to corporate sales positions, big cities like Vancouver and Toronto offer better-paying job opportunities that often justify the higher cost of rent.

On the other hand, remote workers can save significantly by living in the more affordable suburbs and small towns of Canada.

If you have kids, you’ll probably need at least a two-bedroom rental. The only difference is that your children will not be able to share the rent and bills with you. With this in mind, parents can choose to live outside the big cities in more affordable suburbs, where they can rent two-bedroom accommodation at a lower rate.

• Accessibility to public transport

One argument for living in a more expensive city center is that there is better access to public transport. Relying on public transit can help reduce the costs of financing or leasing a vehicle and paying for car insurance, fuel and repairs.

If you rely mostly on low-cost public transit, you can spend more than 30% of your income on your rent. The extra money you’ll save by not paying for your own vehicle can be applied to your rental costs.

Preparing for high rents in 2023

In addition to the recent increase in inflation, CMHC has also reported that Canada is experiencing a housing shortage. Combined, these two factors will likely contribute to even higher rental rates throughout 2023.

For now, the best ways to prepare are to reduce the cost of your rent by living with a roommate or moving outside expensive city centers, sticking to your personal budget and finding creative ways to generate additional income with secondary hustle.

Christopher Liew is a CFA charterholder and former financial advisor. He writes personal finance advice for thousands of Canadian readers daily on his Wealth Awesome website.

Do you have a personal finance question, tip, or story idea? Please email us at dotcom@bellmedia.ca.