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Why aiming to achieve pre-COVID housing affordability levels makes sense

The pandemic was a milestone in deteriorating affordability levels across the country. While many Canadians still face housing affordability challenges, aiming for pre-pandemic affordability levels may offer an achievable goal to bring relief to Canadian families.

December 6, 2024

Mathieu Laberge — Chief Economist and Senior vice-president, Housing Insights

Mathieu Laberge — Chief Economist and Senior vice-president, Housing Insights

Canada's housing markets have undergone significant change since 2020. That's why it makes sense to aim to regain the levels of housing affordability we had pre-pandemic.

In this article, we will provide the rationale as to why targeting pre-pandemic affordability seems realistic.

We will also explore why Toronto and Vancouver will need more extensive solutions, and likely more time, to regain affordability status, given the more structural and long-standing issues impacting both markets.

Housing affordability challenges: long-standing in Toronto and Vancouver, much more recent elsewhere

New data and analysis by CMHC provide more detail as to how renters, homeowners and homebuyers have fared through the current affordability crisis.

The tables below show the performance of different affordability indicators for renters, homeowners, and homebuyers across major cities in the country.

They also show how these indicators performed in milestone years relative to their historical values. Grey denotes a value that is within historical values, while different shades of green and red give a sense of the intensity of the deviation from historical values.

Figure 1: Rental market affordability indicators

Rent-to-Income

2-bedroom rent vs average household income of renters

 
Rent-to-Income
2-bedroom rent vs average household income of renters (from CIS)
CMA 2006 2019 2023
Calgary 20.3% (Historical value) 18.0% (Slight improvement) 21.1% (Slight deterioration)
Edmonton 20.2% (Historical value) 18.5% (Historical value) 19.6% (Historical value)
Halifax 24.8% (Historical value) 25.2% (Historical value) 28.1% (Unfavourable)
Montréal 19.6% (Historical value) 18.4% (Historical value) 17.3% (Historical value)
Ottawa 26.2% (Historical value) 23.8% (Historical value) 25.8% (Historical value)
Toronto 29.3% (Slight deterioration) 28.0% (Historical value) 26.4% (Historical value)
Vancouver 27.9% (Historical value) 26.2% (Slight improvement) 27.9% (Historical value)
 
Unfavourable
 
Slight deterioration
 
Historical values
 
Slight improvement
 
Favourable

Vacancy Rate

2-bedroom purpose-built units (row & apartment)

 
Vacancy Rate
2-bedroom purpose-built units (row & apartment)
CMA 2004 2019 2023
Calgary 5.0% (Slight improvement) 4.4% (Slight improvement) 1.3% (Unfavourable)
Edmonton 5.6% (Slight improvement) 5.0% (Slight improvement) 1.9% (Slight deterioration)
Halifax 3.4% (Slight improvement) 0.9% (Unfavourable) 0.9% (Unfavourable)
Montréal 1.3% (Unfavourable) 1.4% (Slight deterioration) 1.7% (Slight deterioration)
Ottawa 4.1% (Favourable) 1.9% (Historical value) 2.5% (Historical value)
Toronto 4.5% (Favourable) 1.4% (Historical value) 1.2% (Slight deterioration)
Vancouver 1.6% (Historical value) 1.5% (Historical value) 1.1% (Slight deterioration)
 
Unfavourable
 
Slight deterioration
 
Historical values
 
Slight improvement
 
Favourable

Rent Premium

Vacant 2-bedroom asking rent vs occupied

 
Rent Premium
Vacant 2-bedroom asking rent vs occupied
CMA 2004 2019 2023
Calgary -1% (Historical value) 1% (Historical value) 16% (Unfavourable)
Edmonton -1% (Historical value) 1% (Historical value) -1% (Historical value)
Halifax -10% (Historical value) -7% (Historical value) 2% (Slight deterioration)
Montréal 16% (Historical value) 26% (Slight deterioration) 19% (Historical value)
Ottawa 3% (Historical value) 19% (Slight deterioration) 2% (Historical value)
Toronto -3% (Historical value) 29% (Slight deterioration) 11% (Historical value)
Vancouver -9% (Historical value) 24% (Slight deterioration) 20% (Slight deterioration)
 
Unfavourable
 
Slight deterioration
 
Historical values
 
Slight improvement
 
Favourable

Annual Variation of Non-Shelter Expenses

Growth in the cost of a basic basket of goods and services for a family of four

 
Annual Variation of Non-Shelter Expenses
Growth in the cost of a basic basket of goods and services for a family of four
CMA 2004 2019 2023
Calgary 1.2% (Favourable) 2.6% (Unfavourable) 4.2% (Unfavourable)
Edmonton 1.2% (Favourable) 2.6% (Unfavourable) 4.2% (Unfavourable)
Halifax 1.6% (Slight improvement) 2.4% (Slight deterioration) 5.2% (Unfavourable)
Montréal 1.6% (Historical value) 2.4% (Unfavourable) 5.5% (Unfavourable)
Ottawa 1.5% (Slight improvement) 2.8% (Unfavourable) 4.5% (Unfavourable)
Toronto 1.6% (Slight improvement) 2.8% (Unfavourable) 4.3% (Unfavourable)
Vancouver 1.8% (Historical value) 3.1% (Unfavourable) 4.7% (Unfavourable)
 
Unfavourable
 
Slight deterioration
 
Historical values
 
Slight improvement
 
Favourable

Figure 2: Homebuying & homeownership affordability indicators

Homebuying Repayment Affordability

Monthly expenditures if buying a median price home, expressed as a proportion of the region’s median income

 
Homebuying Repayment Affordability
Monthly expenditures if buying a median price home, expressed as a proportion of the region's median income
CMA 2004 2019 2023
Calgary 26.9% (Historical value) 25.5% (Slight improvement) 34.5% (Unfavourable)
Edmonton 23.2% (Historical value) 22.4% (Slight improvement) 26.3% (Historical value)
Halifax 27.9% (Historical value) 26.0% (Historical value) 39.9% (Unfavourable)
Montréal 27.3% (Historical value) 25.4% (Historical value) 35.8% (Unfavourable)
Ottawa 29.2% (Historical value) 29.6% (Historical value) 44.4% (Unfavourable)
Toronto 33.1% (Historical value) 42.4% (Historical value) 58.8% (Unfavourable)
Vancouver 35.2% (Historical value) 41.3% (Historical value) 59.6% (Unfavourable)
 
Unfavourable
 
Slight deterioration
 
Historical values
 
Slight improvement
 
Favourable

Homebuying Downpayment

Minimum down payment required to qualify for the purchase of a median price home, expressed as a proportion of the region’s median income

 
Homebuying Downpayment
Minimum down payment required to qualify for the purchase of a median price home, expressed as a proportion of the region's median income
CMA 2004 2019 2023
Calgary 16.0% (Historical value) 18.0% (Historical value) 63.4% (Unfavourable)
Edmonton 13.1% (Historical value) 14.8% (Historical value) 14.1% (Historical value)
Halifax 15.2% (Historical value) 16.5% (Historical value) 128% (Unfavourable)
Montréal 14.3% (Historical value) 17.9% (Historical value) 86.3% (Unfavourable)
Ottawa 16.8% (Historical value) 20.4% (Historical value) 196% (Unfavourable)
Toronto 20.3% (Historical value) 239% (Slight deterioration) 417% (Unfavourable)
Vancouver 27.9% (Historical value) 233% (Slight deterioration) 441% (Unfavourable)
 
Unfavourable
 
Slight deterioration
 
Historical values
 
Slight improvement
 
Favourable

Homebuying Choice

Share of home sales attainable with the region’s median income and a 20% downpayment

 
Homebuying Choice
Share of home sales attainable with the region's median income and a 20% downpayment
CMA 2004 2019 2023
Calgary 91.9% (Historical value) 83.3% (Historical value) 57.3% (Unfavourable)
Edmonton 97.0% (Historical value) 93.4% (Historical value) 84.8% (Unfavourable)
Halifax 88.1% (Historical value) 81.3% (Historical value) 39.4% (Unfavourable)
Montréal 83.8% (Historical value) 77.8% (Historical value) 51.8% (Unfavourable)
Ottawa 86.9% (Historical value) 71.5% (Historical value) 26.0% (Unfavourable)
Toronto 76.0% (Historical value) 35.1% (Slight deterioration) 15.7% (Unfavourable)
Vancouver 63.6% (Historical value) 37.6% (Slight deterioration) 14.1% (Unfavourable)
 
Unfavourable
 
Slight deterioration
 
Historical values
 
Slight improvement
 
Favourable

User Cost of Homeownership

Economic cost of owner-occupancy presented as a percentage of median household income

 
User Cost of Homeownership
Economic cost of owner-occupancy presented as a percentage of median household income
CMA 2004 2019 2023
Calgary -0.3% (Historical value) 31.5% (Historical value) 4.8% (Historical value)
Edmonton 4.2% (Historical value) 23.3% (Historical value) 32.1% (Slight deterioration)
Halifax -7.3% (Historical value) -3.5% (Historical value) 23.8% (Historical value)
Montréal -5.8% (Historical value) 2.1% (Historical value) 30.6% (Slight deterioration)
Ottawa -7.7% (Historical value) -7.8% (Historical value) 59.6% (Unfavourable)
Toronto -0.3% (Historical value) 15.5% (Historical value) 97.8% (Unfavourable)
Vancouver -21.1% (Historical value) 62.2% (Slight deterioration) 88.0% (Unfavourable)
 
Unfavourable
 
Slight deterioration
 
Historical values
 
Slight improvement
 
Favourable

These tables paint a much clearer picture than broad-stroke national analyses that combine several markets and user types.

Key insights:

  1. Housing was mostly affordable in Canada in 2019, then COVID hit.
    • Although many affordability indicators deteriorated between 2004 and 2023, the deterioration was most substantial during the COVID period.
    • Notably, the vast majority of homebuying and homeownership affordability indicators across all urban centres showed a clear deterioration between 2019 and 2023.
    • During COVID, labour mobility contributed to this deterioration across the country's largest urban centres, especially with many households looking to buy a home outside of these cities.
  2. Toronto and Vancouver stand out in terms of homebuying affordability challenges, which seem to be structural.
    • For homebuyers, there were generally no housing affordability changes between 2004 and 2019, except in Toronto and Vancouver where we have observed signs of affordability challenges, starting as early as 2004.
    • These markets have faced harsh financial conditions for several years, and solutions may require deeper changes than elsewhere in the country.
  3. We may not have yet seen the full extent of rental market affordability challenges. 
    • Not as many rental market indicators deviate from their historical values as those of the homeowners and homebuyers.
    • This is still a cause for concern in the rental market. More expensive homebuying means more Canadians are remaining renters for longer, putting additional pressure on the rental market.
  4. Inflation hit renters hard.
    • Post-COVID, non-shelter costs spiked, and limited renters' purchasing power, including their capacity to cope with higher housing costs.
    • As shown in our Rental Market Report, this may also have limited their ability to move due to elevated asking rents.
    • This immobility also applies to homeowners, but renters tend to have lower incomes and less flexibility to face increases in the cost of goods and services than homeowners.

Incremental progress goes a long way

Two broad conclusions can be drawn from this analysis.

First, focusing on fixing the more recent and less entrenched situation and directing efforts to getting back to pre-COVID housing affordability across the country may not fix every challenge, but it would bring relief to many Canadian families. As such, using a pre-pandemic year as our affordability benchmark makes sense.

Second, the first step in resolving a crisis is being transparent about what is possible and when. The affordability situation in Toronto and Vancouver is very different from other parts of the country where affordability challenges emerged during the pandemic period.

Solutions to the affordability crisis in both cities may require deeper structural changes compared to other cities and will take longer to resolve.

Notes

In developing the colour-coding of tables in this article, we used a standard statistical approach that relies on the historical volatility of each indicator. The legends below map out how we established these historical values, and the deviation of those for each year and each indicator.

Thresholds Used for All the Other Indicators
Unfavourable over 2 std dev above the historical average
Slight deterioration 1 – 2 std dev above the historical average
Historical values Within 1 std dev
Slight improvement 1 – 2 std dev below the historical average
Favourable over 2 std dev below the historical average
Thresholds Used for the Vacancy Rate Indicator
Unfavourable bottom 20%
Slight deterioration 20 – 40%
Historical values 40 – 60%
Slight improvement 60 – 80%
Favourable top 20%
Thresholds Used for the Annual Variation of the Non-Shelter Expenses
Unfavourable top 20%
Slight deterioration 60 – 80%
Historical values 40 – 60%
Slight improvement 20 – 40%
Favourable bottom 20%
  1. Rental market affordability indicators

    Rent-to-Income Ratio (RTIR) is the average rent in the primary rental market divided by monthly income, with rent and income defined by a particular profile (combination of rent and income). For the RTIR, 2006 is the first year with available data. Income data for 2023 were estimated from previous years, using annual average growth rates.

    Rent Premium represents the difference in percentage between the average asking rent of vacant units, and the average rent of occupied units in the primary rental market. In general, the higher the measure, the more difficult the position of new or moving renters.

    Vacancy Rate is the vacancy rate of purpose-built rental units.

    Annual Variation of Non-Shelter Expenses is the annual variation in the cost of a basic basket of non-shelter goods and services (food, transportation, clothing, and other expenditures excluding housing) representing a minimum standard of living for a family of four.

  1. Homebuying and Homeownership affordability indicators

    Homebuying Repayment Affordability are mortgage repayment and other expected recurring homeowner spendings such as property taxes, utilities, home insurance and maintenance (condominium fees, maintenance & repairs) required to buy a representative home, expressed as a proportion of the region's median income. This indicator uses income from both homeowners and renters combined.

    Homebuying Choice is the share of home sales within a price range attainable with the region's median income. This indicator uses income from both homeowners and renters combined.

    User Cost of Homeownership measures the economic cost of owner-occupancy, expressed as a percentage of household median income. The measure includes cash (e.g. mortgage interest, property taxes and maintenance) and non-cash (e.g. net home value appreciation) costs. It excludes outlays which are not conceptually costs (e.g. the part of mortgage payments going to the principal repayment). Conceptually, this captures the real cost of homeownership, net of the benefits of owning an asset which can appreciate. This makes it an interesting indicator to compare to the cost of renting.

    This measure can be more difficult to interpret due to the following:

    • It can take on negative values.
      • When house prices appreciate, the user cost of ownership declines. If the appreciation is large enough, the user cost of ownership can be negative.
    • It is conceptually different than what the layman would consider as the cost of ownership.
      • Since it considers the changing asset value, and homes are relatively illiquid assets, it does not necessarily match the day-to-day financial situation that homeowners face.
        • An example of this is a situation where mortgage rates and property tax rates climb along with home prices. The homeowner may struggle with higher mortgage payments upon renewal, as well as higher property taxes despite the user cost of ownership not increasing due to the offset from home appreciation.
      • It does not capture the portion of mortgage payments that go towards the principal.

Mathieu Laberge
Chief Economist and Senior vice-president, Housing Insights

Mathieu Laberge leads a team of experts in housing economics and insights whose work informs Canada’s efforts to address key housing issues including housing affordability.

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Date Published: December 6, 2024
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