Deteriorating Housing Affordability in Canada

The Frontier Centre for Public Policy has released the 2022 edition of Demographia Housing Affordability in Canada. This article includes the Executive Summary, with a link to the entire report. The report is authored by Wendell Cox, a senior fellow with the Frontier Centre for Public Policy.

Executive Summary

Demographia Housing Affordability in Canada assesses middle-income housing affordability (Section 1) in 46 markets.

Housing affordability is more than house prices --- it is house prices in relation to income. Price-to- income ratios are frequently used to evaluate housing affordability. They have been used by the World Bank, the United Nations, the Organization for Economic Cooperation and Development, and the International Monetary Fund and other organizations. Demographia uses the “median multiple,” which is the median house price divided by the pre-tax median household income.

In Canada, Australia, Ireland, New Zealand, the United Kingdom and the United States, price-to-income ratios were at or below 3.0 as late as the early 1990s. Demographia uses the median multiple housing affordability ratings in Table ES-1.

Housing Affordability in Canada: The Context

Among the six major markets (now over 1,000,000 population), housing remained comparatively affordable from 1970 to the mid-2000s, though the Vancouver market had become severely unaffordable. Since the mid-2000s, however, housing affordability has deteriorated (Section 2).

Housing Affordability in 2021

In 2021, there were 25 “severely unaffordable” housing markets out of the 46 rated. This is up from 18 in 2019. There are only three “affordable” markets, which is down from eight in 2019. The housing affordability ratings are summarized in Table ES-2. Affordability ratings by housing market are shown in Table 4 (alphabetical) and Table 5 (both in the report proper).

During the pandemic there has been an important trend toward working at home (“telecommuting”), and many households entered the housing market, seeking more living space (both inside the house and outside). This has resulted in a “demand shock” that worsened housing affordability. The demand for housing rose faster than could be readily supplied by developers and builders.

Severely unaffordable housing is concentrated in British Columbia and Ontario. By far the most severely unaffordable major markets are Vancouver and Toronto, which are also rated the third and tenth least affordable among the 92 markets in Demographia International Housing Affordability.

Severely unaffordable housing has spread beyond Vancouver to other British Columbia markets and beyond Toronto to other Ontario markets. Net interprovincial migration has increased away from Vancouver and Toronto, while the other markets have gained, as households have sought more affordable housing.

Three markets remain affordable: Fort McMurray (AB). Saguenay (QC) and Moose Jaw (SK).

Housing Affordability and Land Use Regulation

Deteriorating housing affordability is driving the international cost-of-living crisis that threatens the future of the middle-class. In Under Pressure: The Squeezed Middle-Class, the OECD finds that the middle- class faces ever costs of living and that rising owned house prices are the “main driver of rising middle- class expenditure.”

Academic research associates declining housing affordability with stronger land use regulation, especially, urban containment. Urban containment places significant restrictions on development on the outskirts of urban areas. This has been associated with large land value increases both on the urban fringe and throughout the entire market. Unlike municipal zoning regulations, which apply only within their enacting jurisdictions, urban containment typically applies to the entire housing market (metropolitan area).

In Rethinking Urban Sprawl: Moving Toward Sustainable Cities, OECD concludes that urban containment strategies (such as urban growth boundaries and greenbelts) must be accompanied by sufficient land for urban expansion to maintain housing affordability. This land needs to be competitively priced to keep house prices from rising disproportionately compared to incomes. Urban containment policy is typical in the least affordable markets.

Housing Affordability and Inequality

French economist Thomas Piketty identified growing wealth inequality over recent decades. Other economists, such as Giani La Cava of the Bank for International Settlements (Berne) have traced much of this rising inequality to inordinately increasing house values. By definition, house price increases exceeding household income growth worsen housing affordability, leading to greater wealth inequality. Wealth inequality can be expected to increase so long as house prices continue to rise faster than incomes.

Policies should be adopted that restore the competitive market for land on the urban fringe where housing has become severely unaffordable. In lightly regulated markets, policies associated with inordinately higher land and house prices should be avoided.

Recent Improvement

There have been recent declines in some markets. In May 2022, for example, house prices declined in four of the six major markets. The Bank of Canada policy interest rate increases have led to higher mortgage rates, reducing housing demand. At the same time, as the housing market moves beyond the demand shock, house prices should moderate toward pre-pandemic levels.

Continue reading the full report here.

Wendell Cox is principal of Demographia, an international public policy firm located in the St. Louis metropolitan area. He is a founding senior fellow at the Urban Reform Institute, Houston, a Senior Fellow with the Frontier Centre for Public Policy in Winnipeg and a member of the Advisory Board of the Center for Demographics and Policy at Chapman University in Orange, California. He has served as a visiting professor at the Conservatoire National des Arts et Metiers in Paris. His principal interests are economics, poverty alleviation, demographics, urban policy and transport. He is co-author of the annual Demographia International Housing Affordability Survey and author of Demographia World Urban Areas.

Mayor Tom Bradley appointed him to three terms on the Los Angeles County Transportation Commission (1977-1985) and Speaker of the House Newt Gingrich appointed him to the Amtrak Reform Council, to complete the unexpired term of New Jersey Governor Christine Todd Whitman (1999-2002). He is author of War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life and Toward More Prosperous Cities: A Framing Essay on Urban Areas, Transport, Planning and the Dimensions of Sustainability.

Photograph: Suburban Vancouver. Vancouver is the least affordable housing market in Canada and third least affordable in Demographia International Housing Affordability 2022, less affordable than all but Hong Kong and Sydney, among the 92 evaluated markets in eight nations.