Canada's Condominium Magazine

Housing affordability slipping in Canada, but mostly in Toronto and Vancouver

Depending on where they live and what kind of home they are looking for, Canadians could find it more of a struggle to afford what they want. RBC says owning a home in Canada became less affordable in the third quarter of this year than at any time in the last eight years. The index it uses to indicate how much of a household’s pre-tax income is required to cover the costs of home ownership, including mortgage payments, taxes and utilities, rose by 1.3 per cent to 44.3. An increase indicates a deterioration in affordability.

Looking at the report a little more closely reveals that there are really just a couple of serious problem areas in the country. They are, as usual, Vancouver and Toronto. In Toronto the RBC aggregate measure (including the cost of all home types) jumped 3 percentage points, hitting 63.7 per cent. This was the biggest rise in the index of all major markets, and it is the highest it has been for Toronto since the all-time high of 1990. The RBC report characterizes this as “intense affordability stress.” For a single detached home in Toronto, the index is around 78 per cent, an even more impossible number for most people.

Vancouver is still staggeringly unaffordable with an aggregate index of 92 per cent, though there is talk of a turnaround in that market. The single detached home is now “clearly a luxury form of housing” in Vancouver, and even condominiums showed a “mildly deteriorating” trend in the third quarter, but the fact that the third-quarter increase in the index was smaller than it has been since early in 2015 may indicate that a turning point has been reached.

Condominiums remain an affordable housing option in Toronto. Pictured is a rendering of Selene condominiums from Tridel. Suites are priced from $283,500 for one bedroom plus den.

No such turning point is in evidence in Toronto, where a vibrant economy, strong demographic flows, and investor activities have kept sales strong. The poor and “rapidly” deteriorating affordability does not appear to be an impediment to Toronto buyers, the RBC report says. Much of the affordability stress is concentrated in the single detached market, where such a home was reportedly sold this week for $400,000 above asking.

Despite the generalized slippage in the third quarter, it remains the case that affordability tensions are concentrated mainly in the Vancouver and Toronto areas—with some evidence that stress is spreading to some extent to other markets within British Columbia (e.g. Victoria) and Southern Ontario (e.g. Hamilton). Outside of Canada’s few housing hot spots, housing affordability generally continue to be close to historical norms.

The Toronto condo segment, on the other hand, has a relatively affordable index measure of 35.5 per cent. This segment represents a rapidly growing share of the resale market, the report says.

Source: RBC

As for other parts of the country, the index tells a different story in each city. Owning a home in Regina, for example, remains reasonably affordable. The index there reached 30.1 per cent, and the market is said to be well balanced. In Calgary, which has had its own particular problems over the past nineteen months, the affordability index inched up to 33.6 per cent. This is seen as a sign that the worst of the housing downturn may be over, though unemployment is still above 10 per cent in Calgary, and there has been a net loss in the population. Halifax, meanwhile, has an index of 30.5 per cent, which is below the historical average for that city. And in St. John’s, the “very tough” economic landscape has hampered housing demand. The index there was just 27 per cent.

The RBC report notes that if the federal government’s latest efforts to rein in the rate of home price increases are successful, affordability could improve. That improvement could be overshadowed, however, by a rise in longer-term interest rates. Home ownership costs are “very sensitive” to changes in interest rates, especially in high-priced Toronto and Vancouver.

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