It’s no secret that owning a home and the ability to grow home equity is one of the central ways to build personal wealth. But with housing prices reaching record highs across Canada, more and more Canadians are being locked out of this opportunity.

In fact, according to the 2021 Manulife Bank Debt survey, homeownership is out of reach for three-quarters of Canadians who want to own a home and for those that are able to get into the housing market, 33% stated that they needed help from their parents. 

Many Canadians, especially young Canadians and those who don’t have access to the bank of mom and dad, are being left out in the cold. In fact, it now takes the average urban Canadian homebuyer 28 years to save for the recommended 20% down payment. 

With so many barriers to traditional homeownership, we’ve begun to see innovative models pop up to increase the accessibility of homeownership. Here are a few alternative homeownership models that currently exist in Canada: 

1. Shared Equity Mortgage models

Shared equity models offer a more affordable way for Canadians to start owning. With shared equity mortgages, a company will develop units and loan the homeowner moving into their unit the money for a 10-15% down payment, which means the company will have an equity position in their home. This downpayment secures a conventional mortgage as well as lowers monthly carrying costs.

When the owner is ready to move out, they will have to pay back the down payment plus the appreciation that is matched with the initial down payment percentage they received.

2. Housing co-operatives

Housing co-operatives have been around in Canada since the 1930’s. They are non-profit and offer at-cost housing for their members. Instead of having a landlord, housing co-ops are controlled by the members of the co-ops, who vote for decision making. Members of co-ops are expected to engage and participate in running the co-op alongside the other members.

In Canada, housing co-operatives are permanent rentals, meaning individuals living in these homes do not have the opportunity to build individual equity or own the home they live in. 

3. Rent-to-own models

One of the more well known alternative models that has emerged over the recent years are rent-to-own models. With rent-to-own agreements you sign on to rent a property for a certain period of time with the intention to buy it before the end of your lease. Your monthly rental payments help you save up for a down payment. 

With rent-to-own because there is a set timeline for purchasing the home, there are extra upfront fees which range from 1-5% of the purchase price. Additionally, at the end of your lease you are required to qualify for a mortgage and put down 5-20%. Should you decide to not take on the mortgage and purchase the home, you risk losing all of the equity you’ve been saving up and your initial deposit. You can learn more about how rent-to-own models compare to Key’s co-ownership model here.

4. Co-ownership or Co-equity models

Co-ownership or Co-equity models allow you to co-own a property alongside an investor or property owner. With Key’s co-ownership model you can start owning for just 2.5% of the value of your suite, and no required mortgage. 

Unlike other alternative models, with co-ownership you can start building home equity from day one and your investment grows with the real estate market. You have a monthly payment, where each month $50 goes towards building equity and the rest covers things like property taxes and maintenance fees. You can invest more at any time, and the more of you own the lower your monthly payment will be. After three years you have the option to purchase your suite and take on a mortgage, but there is no requirement. You can learn more about how Key is providing the benefits of owning here. 

Additionally, Key’s model offers a co-financing benefit, which allows you to benefit from leverage without having to take on any debt. You can learn more about Key’s co-financing benefit here. 

With more Canadians than ever trying to break into the real estate market, alternative homeownership models are more vital than ever. If you’re a renter who’s struggling to get into the market, learn more about why Key is one of the best alternative homeownership models for first-time buyers.