Rates.ca Resources & News

Surprise, Surprise. Toronto and Vancouver Housing “Severely Unaffordable”

Rising home prices2.jpg

Vancouver and Toronto have earned the dubious distinction of being among the top six least affordable housing markets in the world—outranking even New York City and London, England.

Vancouver is the world’s second-least affordable place to buy a home, ranking behind only Hong Kong. Toronto tied for sixth place, along with Auckland, New Zealand. This is according to the 16th annual Demographia International Housing Affordability Survey. The survey ranked 309 metro areas in eight countries.

Of course, this is no revelation to homebuyers in these cities. Affordability—or rather, unaffordability—has been at a critical level for many quarters, following years of robust price gains.

Despite efforts by federal and provincial governments to rein in house price growth with foreign buyers’ taxes, mortgage stress tests and other regulatory changes, GTA and GVA home prices have abated only briefly.

In terms of carrying costs, mortgage payments on detached homes are still 15% lower than at Toronto’s peak in April 2017 (assuming 20% down on the average home price). But for condos, the average Toronto mortgage payment is 13% more today—even after the supposed “selloff.”

“Over the past year there has been a moderation of house price increases in some of the least affordable major markets,” the survey authors wrote. “However, the trends were insufficient to materially improve housing affordability.

How Do Other Canadian Cities Rank?

The rankings above were calculated by dividing the median house price by pre-tax median household income. For Vancouver, that multiple is 11.9 (down from 12.6 in 2018, but unchanged from when B.C. imposed its foreign buyers’ tax in 2016), while Toronto’s multiple is 8.6, up from 8.3 in 2018 and 3.9 in 2004. A ranking of 3.0 and under is considered affordable.

Overall, Canada’s median multiple is 4.4, which is considered “seriously unaffordable.” On the plus side, two of the country’s key markets are considered moderately affordable, which is good news…if you want to move to Alberta.

  • Montreal (4.7 / Seriously unaffordable) – This is a deterioration from 3.1 in 2004.
  • Calgary (3.9 / Moderately unaffordable) – Calgary has seen a slight improvement in affordability due to the downturn in the province’s oil and gas industry. This is still a deterioration from 3.0 in 2004.
  • Ottawa-Gatineau (4.1 / Seriously unaffordable) – This is a deterioration from 2.9 in 2004.
  • Edmonton (3.8 / Moderately unaffordable) – This is Canada’s most affordable major housing market.
  • Fort MacMurray (1.8 / Affordable) – Ranked as the most affordable housing market in this survey, again due to Western Canada’s economic downturn.

What Makes a Housing Market Unaffordable?

High home prices alone don’t constitute an unaffordable housing market. An expensive market can still be considered relatively affordable, so long as income growth keeps pace. That allows residents to better afford minimum down payment requirements and monthly carrying costs. Unfortunately, average wages in Canada rose just 3.8% in 2019 while average home prices jumped 9.6%.

Affordability can also be aided by falling interest rates. And we saw that last year, but only barely. The federal mortgage stress test rate dropped a mere 0.15 percentage points, improving mortgage affordability by a skimpy 1.40%.

Young homebuyers are hoping (praying) for better in 2020.