Breaking: The Timeless Housing Cost Rule – Stay Afloat in 2025
Did you know the magic recipe to stay financially afloat hinges on dedicating just 25-30% of your pre-tax income to housing? But does this rule still hold in 2025?
Where Does the Rule Come From?
For decades, the percentage of income dedicated to housing has varied widely, from 25% to 44%.
Since 1977, the Quebec Society of Housing (SHQ) has implemented rent financing programs primarily aimed at low-income households, with rental costs capped at 25% of their income. In 1989, the Popular Action Front in Urban Redevelopment (FRAPRU) validated the “rule of 25%,” and the Canadian Mortgage and Housing Company (SCHL) adopted a 30% threshold in 1986.
What Does the 25-30% Rule Encompass?
Today, housing activists and financial planners advocate using the 25-30% rule to cover all housing-related expenses, including rent, mortgage, taxes, and heating.
Stéphane Daigneault, a mortgage representative at Desjardins, points out that lenders also consider other debts such as student loans and personal loans. Léa Saadé, a financial planner at IG Patrimoine Management, notes that home insurance costs are often overlooked.
Importance of Adhering to the Rule
Experts argue that spending more than 30% of your income on housing leads to necessary budget cuts in other essential areas like food and clothing. Hélène Hétu, a budget consultant at ACEF Rive-Sud de Montréal, emphasizes that adhering to the 25-30% rule helps save for emergencies and builds financial security.
Current Housing Affordability Landscape
Despite the rise in housing prices, particularly in large cities, statistical data demonstrates that the 30% target is more attainable than ever. In 2021, only 10% of homeowners exceeded this threshold.
In Quebec, the average rent at $1,200 per month admirable represents 22% of the gross average income of $63,000. Adding heating and insurance brings it close to the 25% mark, staying within the 30% threshold.
However, the situation is dire for new homeowners, with house prices rising 67% over the last decade compared to a 17% increase in wages. Estimated monthly mortgage payments at 36% of gross income multiply these costs further.
Strategies for Financial Stability
Budget cuts in non-essential areas, additional employment, sharing spaces, or turning to housing cooperatives are practical steps to balance finances. Financial guidance from experts ensures better budgeting and long-term financial health.
Experts like Léa Saadé and Pascal Larivière underline the importance of comprehensive financial planning to navigate the immediate and lasting impacts of lifestyle choices on retirement.
