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Unaffordable housing markets in Canada

Vancouver-unaffordable
March 15, 2022

Photo: CullenPhotos / Adobe Stock

Michelle McNally - Livabl.com

Home buyers looking for a property in Vancouver are searching in one of the world’s most unaffordable housing markets, as proven by recently published research.

This month, the Frontier Centre for Public Policy in Winnipeg and the Urban Reform Institute, a Houston-based non-profit, released the 2022 edition of Demographia International Housing Affordability. The report — which was authored by Wendell Cox, a senior fellow at both institutions — provides middle-income housing affordability ratings for 92 major markets around the world by measuring income in relation to housing prices.

The most recent edition applies to Q3-2021 in eight nations, including Australia, Canada, China, Ireland, New Zealand, Singapore, the United Kingdom and the United States.

The report uses a median multiple measurement to gauge middle-income housing affordability, which is a price-to-income ratio where the median house price is divided by the gross median pre-tax household income. Middle-income housing affordability is then rated in four categories, ranging from the most affordable (a median multiple of three and under) to the least affordable (a median multiple of 5.1 and over).

Out of the 92 markets analyzed, Vancouver is the 90th least affordable with a median multiple of 13.3. This is less than Sydney at 15.3 and the least affordable market, Hong Kong, at 23.2. Vancouver is the least affordable market in Canada, and has seen its median multiple climb from 11.9 in 2019 to its current level, an increase of 1.4 years of median household income.

“Severely unaffordable housing has spread from Vancouver to smaller markets, as metro Vancouver has shed domestic migration to smaller markets in British Columbia, such as Chilliwack, the Fraser Valley, and Kelowna and markets on Vancouver Island,” noted the report.

Toronto ranks as 83rd least affordable market

Of the six Canadian markets analyzed in the latest edition of the Demographia International Housing Affordability report, the majority were found to be very unaffordable.

The number of severely unaffordable housing markets has doubled in Canada, increasing from two in 2019 to four in 2021. The Canadian markets analyzed in the report have a median multiple of six, up from 4.4 in 2019. Four of the six markets in Canada have been rated severely unaffordable, including Montreal (6.1) and Ottawa-Gatineau (5.4). Calgary has a median multiple of four, ranking it as moderately unaffordable.

Falling in 83rd place out of 92 global markets, Toronto is the second-least affordable market in Canada with a median multiple of 10.5. This marks an increase from 8.6 in 2019, suggesting that the median price has increased 1.9 years worth of median household income. Toronto has deteriorated by 6.6 median multiple points from 2004.

“By contrast, there was no housing affordability deterioration in the more than three decades from 1970 to 2004,” states the report. “Severely unaffordable housing has spread to smaller markets in Ontario, such as Kitchener-Waterloo, Brantford, London and Guelph, as residents of metro Toronto seek lower costs of living.”

One Canadian city was among those markets that are currently the most affordable on an international basis. Tied for fourth place out of 92, Edmonton has a median multiple of 3.6, the same amount as St. Louis and slightly higher than the cheapest market, Pittsburgh (2.7).

Global pandemic large contributor to housing unaffordability

The Demographia International Housing Affordability paper theorizes that declining housing affordability is driving higher costs of living, a threat to the future of the middle-class. The COVID-19 pandemic and demand shock are contributing factors.

The report references Sam Khater, chief economist at the US Federal Home Loan Mortgage Corporation, who explained that the pandemic generated housing demand because higher-income households who could work from home wanted more living space and were willing to live farther away from their offices. Supply chain bottlenecks and permitting delays caused by COVID-19 have also lowered the pace of new construction homes.

“There has been a strong trend away from affordability. The number of severely unaffordable markets rose 60 per cent in 2021 compared to 2019, the last pre-pandemic year,” said the report. “There were also more seriously unaffordable markets. At the same time, the number of affordable and moderately affordable markets declined by nearly two thirds.”

The largest housing affordability differences between major metropolitan areas also occurred when “significant restrictions on urban fringe housing development were applied.” The report refers to this as “urban containment,” which is designed to curb the expansion of urban areas.

“Whatever its advantages, urban containment has been associated with huge cost of living and housing cost escalation relative to incomes, thereby increasing poverty and inequality,” the report noted. “This has an important social cost to the many in society already challenged to maintain their standards of living as costs rise disproportionately.”

 

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