Housing Affordability in Canada: The Vancouver and Toronto Experience.

Author:Feng, Judy
 
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November 2, 2018

Introduction

These days, you're bound to come across the issue of housing affordability in Canada, especially in Vancouver or Toronto. You have probably also heard about how housing affordability is especially difficult for Canadian millennials. Millennials, which are younger adults between the ages of 20 to 34, make up approximately 20% of the Canadian population. According to Statistics Canada's net migration data, there has been an upward trend in millennials flocking to Vancouver and Toronto.

However, living in Vancouver and Toronto comes at a steep price. If you are living in Vancouver or Toronto, chances are that most of your paycheck is being used to cover your mortgage or rent. As my fellow millennial friends living in these two cities can attest "we are house poor." Where do we start when talking about this nebulous concept of being "house poor" or more appropriately, "housing affordability"?

Well, let's first compare average home prices with average household income in these two cities. Based on the Canadian Real Estate Association's MLS Home Price Index, the average single detached home costs approximately $1.545 million dollars in Vancouver and $863,500 in Toronto as of September 2018. The average household income is $92,300 in Vancouver and $104,100 in Toronto. While there doesn't appear to be information on average household income on millennials in these two cities, there is information on median income for millennial families. For example, according to Statistics Canada, the median income for millennial couple families in Vancouver is $74,660 and $69,710 for millennial couple families in Toronto.

Even if you manage to make a 20% down payment for an average priced home in these cities, your monthly mortgage payments at the current 3.95% prime interest rate (with a 25-year amortization) would be at least $6,468 in Vancouver ($77,616 per year) or $3,615 in Toronto ($43,380 per year).

When it comes to housing affordability, the CMHC recommends that total monthly housing costs should be no more than 32% of gross household income. With the monthly mortgage figures mentioned above, a household would have to earn at least $242,550 per year in Vancouver (2.6 times the average household income) or at least $135,562 per year in Toronto (1.3 times the average household income) in order to meet the CMHC recommendation.

For the average millennial and non-millennial household, there's not much left over, if at all, at the end of the month for other potential money pits in adulthood like everyday expenses, taxes, insurance, emergencies, children and retirement. In fact, you likely have no choice but to focus on servicing your mortgage for your entire life. Now how about another fun thought experiment: imagine what those monthly payments will be with more interest rate hikes!

The picture is also not so rosy for renters in either of these cities. Vancouver and Toronto are the most expensive Canadian cities to rent in, with the average two bedroom rental going for $1,552 in Vancouver and $1,392 in Toronto according to CMHC's rental market reports. Average monthly rent for two bedrooms in the most desirable and/or central neighborhoods in both cities often exceed $2,000. High prices in home ownership and lack of rental supply have not only kept vacancy rates low at 1%, but have also helped drive rental prices upwards in both cities.

Responding to housing affordability issues: not just a millennial issue

It's no surprise that industry reports have...

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