Reverting to 2019 affordability could stabilize Canada’s housing market
Canada’s housing affordability crisis has reached a tipping point, and the national housing agency is urging policymakers to aim for a return to pre-COVID affordability levels as a practical benchmark for tackling the issue.
In a recent analysis, Canada Mortgage and Housing Corporation (CMHC) chief economist Mathieu Laberge pointed out the sharp decline in affordability between 2019 and 2023, highlighting the pandemic's outsized impact on housing and rental costs.
“Although many affordability indicators deteriorated between 2004 and 2023, the deterioration was most substantial during the COVID period,” Laberge said. “Notably, the vast majority of homebuying and homeownership affordability indicators across all urban centers showed a clear deterioration between 2019 and 2023.”
Toronto and Vancouver are bearing the brunt of the decline in housing affordability. In Toronto, the minimum down payment for a median-priced home as a percentage of median income skyrocketed from 239% in 2019 to 417% in 2023. In Vancouver, the figure soared from 233% to 441%.
“Toronto and Vancouver stand out in terms of homebuying affordability challenges, which seem to be structural,” Laberge said. “These markets have faced harsh financial conditions for several years, and solutions may require deeper changes than elsewhere in the country.”
In November, the average home price in the Greater Toronto Area was $1,106,050, while Metro Vancouver’s benchmark price stood at $1,172,100, further illustrating the affordability gap.
Renters under pressure
The affordability crisis isn’t limited to homebuyers. Renters, too, are feeling the squeeze as inflation erodes their purchasing power.
CMHC data showed that the cost of basic goods and services for a family of four has risen dramatically since 2019, adding to the burden for renters who already face higher housing costs.
“This is still a cause for concern in the rental market,” said Laberge. “More expensive homebuying means more Canadians are remaining renters for longer, putting additional pressure on the rental market.”
Path to affordability
The federal government has taken steps to address housing challenges, including a reduction in immigration targets announced in October. Immigration minister Marc Miller stated that the lower targets aim to alleviate pressure on the housing market, with a projected reduction in the housing supply gap by about 670,000 units by 2027.
However, the Office of the Parliamentary Budget Officer (PBO) has casted doubt on these estimates, warning of potential risks in the projections. The PBO's report suggested that the housing gap could still reach 658,000 units by 2030, calling into question the effectiveness of the government’s plans.
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Laberge argued that setting a benchmark based on pre-pandemic affordability would provide a tangible starting point for policymakers to address the housing crisis effectively.
“The first step in resolving a crisis is being transparent about what is possible and when,” he said. “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.”
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