There is currently a vicious crisis concerning affordable housing in Canada. While experts say we shouldn’t spend more than 30% of our income on housing, there are millions of struggling Canadians spending more than 30% of their income on housing costs.
What makes this issue even worse is that its effect doesn’t end at housing. For those who live off minimum wage, it becomes almost impossible to maintain their budgets as so much of their income goes toward rent. This can lead to high levels of consumer debt, poor credit, and even homelessness.
How and why has the housing market become, and continues to be, so unaffordable in Canada?
What Is A Housing Affordability Crisis?
A housing affordability crisis is a situation in which a large segment of the population cannot afford adequate housing. This typically happens when housing costs are much higher than incomes.
Multiple factors can lead to soaring housing costs, though an imbalance of supply versus demand is at the crux of the issue. Ultimately, when demand is high but the available housing supply is insufficient to meet this demand, a housing affordability crisis may occur. When this happens, an increasing number of Canadians may find it more difficult to afford a suitable place to live.
Does Canada Have A Housing Affordability Crisis?
Canada is indeed in the midst of a housing affordability crisis. A growing number of Canadians are unable to afford homes, according to a recent CIBC report.
In 2019, just before the pandemic struck, around 60% of Canadian households could afford a condo, and 45% could afford a single-family home based on their income. But since then, the share of Canadians who can afford a home has dropped significantly. Now, a mere 26% can afford a single-family home, and 45% can cover the cost of a condo.
Home prices are hitting record levels, and mortgage interest rates have soared over recent months and refuse to budge much. Right now, the average price for a home in Canada is $698,530. That’s up from $409,708 during the month of April 2014, marking a 70% increase over the past decade.
In addition to the hefty home prices, mortgage rates have also made buying a home much more expensive. As of the week of April 10, 2024, the 5-year fixed rate for a conventional mortgage is 6.84%, as per the Bank of Canada.
That’s a far cry from where rates were in 2020 when homebuyers could get a 5-year fixed-rate mortgage at 4.79%. And those who opted for a shorter 3-year term could have gotten a rate as low as 3.49%.
High home prices and mortgage interest rates combined make it increasingly impossible for many Canadians to afford a home purchase.
What’s Causing The Housing Affordability Crisis In Canada?
There are multiple factors that are contributing to Canada’s current housing crisis, including the following:
Tight Housing Inventory
Canada’s housing supply has not responded fast enough to the skyrocketing demand. There are several reasons for this, such as slow housing initiatives and sluggish home sales due to rising mortgage rates.
High Demand For Housing
Over recent years, there has been a huge spike in non-permanent residents entering Canada who are looking for a place to live. The current annual rate of immigration in Canada is roughly 500,000 new immigrants, which is among the highest in the world. This influx of newcomers triggers demand for housing. But with limited housing available to meet this demand, home prices tend to trend upward quickly.
Policies That Limit Home Building
Restrictive policies have stood in the way of home builders constructing housing over recent years. Policies that limit home building in Canada continue to keep property values elevated.
Plus, the cost of building is going up, which is making it more expensive to build homes. Builders, in turn, charge more for housing to cover their rising costs. If the rate of new homes being built isn’t fast enough to keep up with demand, there will not be enough homes to go around.
Investor Speculation
Real estate investors often enter the housing market and buy properties expecting huge gains in a relatively short amount of time. Many investor speculators get in and get out of the market quickly, and multiple times. According to the Globe and Mail, investors accounted for 30% of home purchases in Canada.
Speculative behaviour can contribute to artificial and inflated property values, which causes home prices to spike and leaves many would-be homebuyers priced out of the market.
Sluggish Wage Increases
While minimum wages across Canada are increasing, they can’t keep up with the rate of rental rate increases. That means more and more Canadian workers are spending too much on housing costs. This situation is putting many Canadians at risk of becoming homeless.
Will The Housing Market Crash In Canada?
Given over-inflated home prices and sky-high mortgage interest rates, many are left wondering: will the housing market crash?
While it appears as though Canada is in the midst of a housing bubble, a crash doesn’t seem imminent according to most experts. Instead, it’s expected that the Canadian housing market will recover steadily over time as interest rates and home prices gradually stabilize.
However, one factor that could nudge which way the Canadian housing market will go in the near future is the level of household debt Canadians are currently carrying relative to their incomes. It’s this level of debt that could put many Canadians in a dangerous situation, particularly those who are in a position to renew their home loans at much higher interest rates.
As mortgage terms come due, many homeowners who took out their mortgages when rates were much lower are facing the need to renew their mortgages at rates that are double the amount they’re currently paying. Many will be unpleasantly surprised when they see how much higher their mortgage payments will be due to much higher interest rates at the time of renewal. This is what’s known as the dreaded “mortgage cliff.”
Given this, even those who are already homeowners could face the potential of getting kicked out of the housing market if they’re unable to renew their mortgages at current rates.
What Is Affordable Housing In Canada?
The word affordable has changed drastically over the years. Today, an “affordable” house in the Greater Toronto area costs on average around $1,025,200 according to the CREA National Price Map. As mentioned above, according to the Canadian Mortgage and Housing Corporation (CMHC), housing is considered “affordable” if it costs less than 30% of your income.
Unfortunately, for some people, this isn’t enough to keep their current home, let alone buy a new one. Looking closely at Statistics Canada’s numbers, it appears that this housing crisis is more severe in small, suburban areas and cities.
According to The Globe and Mail, in British Columbia, 31% of renters in West Vancouver spend more than half their income on housing, compared with 25% in the City of Vancouver itself. The cost of homes and rental apartments in residential areas is skyrocketing, causing people to leave their homes in search of affordable housing.
Most Expensive Canadian Cities To Live In 2024
According to Rentals.ca, the following Canadian cities ranked among the top 10 most expensive markets for rentals (prices listed are for a 1-bedroom unit). For comparison purposes, the average home price in each city is also listed, (data collected from Zolo.ca):
| City | Monthly Rent For 1-Bdrm Unit | Average Home Price |
| North Vancouver, BC | $2,704 | $1,535,927 |
| Vancouver, BC | $2,633 | $1,881,126 |
| Toronto, ON | $2,471 | $1,141,307 |
| Oakville, ON | $2,299 | $1,483,269 |
| Mississauga, ON | $2,283 | $1,104,059 |
| North York, ON | $2,239 | $899,000 |
| Brampton, ON | $2,165 | $1,035,684 |
| Scarborough, ON | $2,156 | $849,711 |
| Burlington, ON | $2,145 | $1,192,807 |
| Victoria, BC | $2,111 | $1,292,379 |
As you can see, all cities in the top 10 list are located in either Ontario or BC, which are not surprisingly the more expensive provinces to live in Canada.
The Vicious Circle Of Unaffordable Housing
Advocates state that the steeply rising cost of rent is a result of the lack of low-cost rentals supplied in the main cities. The majority of rentals in the cities are overpriced and privately owned by money-hungry investors. This has forced low-income workers out of the cities and away from their jobs, to look for more affordable housing.
With the influx of people moving from the cities to more suburban and rural areas, housing prices also increase in these places. This then creates another issue, as the people who leave the cities trying to escape the high cost of living are faced with prices just as expensive. The high prices in these communities then spread and affect the residents living in nearby, underprivileged regions, who now must also deal with price increases.
The Canadian Real Estate Boom
Another reason behind the affordable housing problem in Canada is the recent real estate boom. An intense growth in major cities, followed by the increase in demand for real estate, has a direct link to prices.
As demand increases, so does the price. Additionally, people from other countries looking to either move to Canada or invest in property have caused this problem to worsen. Foreign investment in the real estate market has caused an increase in prices and the expected increase in immigration over the next few years will, without a doubt, escalate the demand for rental units.
From Home To Vacation Destination
It’s no secret that Canada is home to dozens of picturesque locations that make for great vacation destinations for both Canadians and tourists from all over the world. And while this is great for the Canadian tourist industry, for those families who have lived in these places for years, the financial burden is only getting worse. With popularity comes an increase in the cost of living.
Bottom Line
As the price of houses continues to increase at startling rates, people are losing their homes and slowly losing their jobs. With a broken economy and aging housing stocks, communities are in need of reasonable, inexpensive housing.
