Vancouver and Toronto Lead the Way in Unaffordable Housing

If you've been paying attention to the housing market in Canada, you probably already know that the cost of owning a home has been on the rise. But a new report from RBC really puts things into perspective. According to the report, households in Canada needed 62.7% of their income to cover the costs of owning a home in the third quarter of 2021, the worst level on record. To put that in context, that's a loss of 14.5 percentage points in affordability over the past year, which is just astounding.

But the news is even grimmer if you happen to live in Vancouver or Toronto. In those cities, it takes a staggering 95.8% and 85.2% of income, respectively, to pay for housing. And even in cities like Edmonton and Calgary, where the percentage of income needed is lower at 41.6% and 31.2%, respectively, rising costs have hit all housing markets.

So what's driving these rising costs? A big factor is the increase in interest rates. Just a year ago, households in Vancouver needed an income of $200,000 to qualify for a mortgage to buy a home at the benchmark price. Now, that number has jumped to $268,000, an increase of 34%. It's a similar story in Toronto, where households need to earn 29% more to get a mortgage.

This affordability crunch is having a real impact on people's lives. A survey conducted by the Ontario Real Estate Association (OREA) found that 69% of renters in Ontario said they "really want" to own a home, but 82% acknowledged that higher mortgage rates are making it difficult to fulfill their dreams. And it's not just Ontario – the situation is similar across the country. Close to two-thirds of Ontarians say they are spending more than 30% of their budget on housing amid rising interest rates, and 95% say the cost of living is more expensive than it was two years ago. Many people are having to cut back on things like restaurants, entertainment, and groceries just to keep up with their mortgage payments.

So is there any hope on the horizon? While it may be tough for many Canadians to afford a home right now, there are a few glimmers of hope. RBC expects that home prices will continue to slide as interest rates rise, and that the benchmark price of a home will have fallen 14% from its peak by spring. Additionally, household income levels are expected to rise, giving potential homebuyers more purchasing power. However, the report notes that it will likely take years for affordability to fully recover from the "tremendous deterioration" of the past year.

In the meantime, there are a few things that governments and other organizations could do to help ease the affordability crunch. The OREA recommends boosting housing supply, providing additional financial aid for first-time homebuyers, exploring changes to the mortgage stress test, and increasing the availability of low-cost borrowing options. These are all steps that could help make homeownership more accessible for more Canadians.