Housing affordability hits worst level in three decades, RBC says

Housing affordability in Canada reached its worst level in 31 years in the third quarter of 2021, with 47.5% of median household income going toward ownership costs, a report from RBC says.

Vancouver residents were worst off, with the share of household income required to cover the costs of home ownership reaching 64.3%. Toronto wasn’t far behind at 61.9%.

RBC takes mortgages, property taxes and utilities into account when calculating ownership costs. The aggregate figure of 47.5% was two percentage points higher than the previous quarter.

Senior economist Robert Hogue wrote that the need for more housing supply was evident over the past year as bidding wars became the norm in regions unaccustomed to the practice.

Prices will continue to rise until supply catches up with demand, he said, and higher interest rates will further contribute to ownership costs.

“Earlier in the pandemic, home buyers benefited from declining interest rates that offset the impact of escalating values,” the report said, but that’s no longer the case. Last quarter, a small increase to the five-year fixed mortgage rate accounted for half the two percentage-point increase.

“Fixed mortgage rates have gone up since summer and we expect the Bank of Canada to start hiking its overnight rate next spring, which would drive variable rates higher,” Hogue wrote. “The knock on affordability will be felt across the country.”

So far, home ownership has remained least affordable in Ontario, B.C. and parts of Quebec, while costs have remained within historical norms in the Prairies and parts of Atlantic Canada. The share of income for ownership in Ottawa and Montreal was around 40%, for example, while Calgary (32.8%) and Edmonton (28.5%) remained well below their long-term averages. Halifax (32.6%) surpassed its long-term average in the latest quarter.

“The outlook for buyers is grim,” Hogue wrote. “We estimate rising interest rates alone could drive up our national affordability measure another 2.0 to 3.5 percentage points over the coming year.”

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.