As the housing market grows more unaffordable, there's more bad news for young Canadians who feel like they will never own a home.
A new study by consulting firm Mercer Canada says millennials who are lifelong renters will have to save 50 per cent more than their home-owning counterparts to have enough money in retirement.
One of the main reasons is homeowners can reap the benefits of home price appreciation, lower shelter costs in retirement and more financial wiggle room from built-up home equity.
"Homeownership also gives retirees flexibility, as retirees who downsize may be able to access a significant amount of money," the report said.
"Renters, conversely, must pay rent every month or face eviction – whether they are 25 years old or 85 years old."
The analysis was based on the assumption of millennial workers having a starting salary of $60,000 and a contribution of 10 per cent of their salary (including an employer-matching program) per month to a savings plan.
The study found young, lifelong renters would have to save eight times their salary to be "ready" to retire at age 68, while a millennial who owned a home would only need to save 5.25 times their salary and would be able to retire three years earlier at age 65.
Affordability in the housing market has deteriorated as higher interest rates ripple through the economy. The big jump in borrowing costs has kept many would-be buyers in the rental market for longer. That, combined with immigration-fuelled population growth, has led to a surge in average monthly rents.
The average rent in Canada rose nearly 10 per cent in February year-over-year to $1,984 per month, according to the latest Rentals.ca rent report. That number can be bigger or smaller depending on the region.
It shows rents have eased in recent months, but the latest figure still marks an increase compared to February 2020, when the national average rent was $1,786.
"In an environment where the cost of living continues to rise and housing affordability continues to decline, many millennials may become resigned to renting, having been permanently locked out of the market," the Mercer report said.
"Compounding these retirement challenges is the issue of debt, as the rising cost of living causes consumer debt to mount – preventing many working people from saving for either a downpayment or retirement."
How millennial renters can get ahead
Lifelong renters need to ensure rental costs are properly factored into their budget now and in their future retirement years, according to Jillian Kennedy, partner and leader of defined contribution and financial wellness at Mercer Canada.
She suggests millennials take full advantage of any workplace retirement and savings programs offered, including employer matching programs.
"Another advantage of participating in a workplace program is that there are typically lower investment management fees due to the group pooling arrangement compared to investing as an individual. Company contributions and lower group fees can help a millennial save more for their future," Kennedy told Yahoo Finance Canada.
"Millennials are often focused on their short-term needs, but if they do not take advantage of their employer-provided benefits, they lose access to money they can't get later."
The Mercer report also suggested renters could consider working for longer or delaying their Canada Pension Plan and Old Age Security benefits until age 70.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.