Canada's Condominium Magazine

Housing affordability improved thanks to low mortgage rates

The Canadian housing market is less affordable than it has been for the past twenty-five years, but affordability did improve somewhat at the beginning of 2014. The market remains “rather lively” and there has been no “noticeable cooling” of activity. Housing data behind the most recent Desjardins Affordability Index show that Canadian households were a little better able to buy a home, even though incomes rose only by as much as average housing prices in that time. Low mortgage rates were responsible for the more favourable affordability.

The greater affordability does not apply to Toronto, however. After a year of price increases of about 8 per cent, the average home price, at $547,340, is “sharply above” average prices in other parts of Ontario, where markets are affordable. Vancouver is also considered unaffordable: the average home price, according to Desjardins, is “around ten times higher” than average household income. Average house prices rose all across Canada, except in the province of Quebec, the Desjardins report says.

Historically, housing affordability has been quite similar in countries like Canada, the United States, England, Ireland and Australia, based on the “median multiple” measure of affordability, which expresses a ratio of median house price to median annual household income. It held at around 3.0 for many years, meaning a home cost about three times the median household income. Recently, in markets like Toronto and Vancouver, it has gone much higher. In 2013, according to a report* on international housing markets, Canada was rated “seriously unaffordable” with a Median Multiple of 4.5. Several countries, including Australia, the UK and Hong Kong, were even less affordable.

The “decoupling” of house prices from household incomes so that the maximum 3.0 affordability standard no longer holds, has resulted from housing prices rising much faster than incomes. This sharp rise in housing prices, some argue, is the result of restrictive land use practices, or “urban containment” policies that restrict the building of housing outside of certain preferred areas. Ontario’s home builders have long argued that this province’s land use policies have negatively affected affordability.

The Desjardins Affordability Index is calculated by determining the ratio between the average household disposable income and the income needed to obtain a mortgage on an average-priced home (qualifying income). Qualifying income is calculated based on the cost of owning a home (mortgage payments, property taxes and utility costs). The closer the index number is to 100, the less affordable the market. In Toronto, the index stood at 104. 6, indicating that a high proportion of income would be needed to service a mortgage. Windsor, Ontario, by contrast had an index of 189.4.

*Demographia Housing Affordability Survey

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