Canada’s Housing Affordability Crisis: A Shift in Benchmarking

Introduction

Canada’s housing market has entered uncharted waters in recent years, prompting a reevaluation of affordability benchmarks. The Canada Mortgage and Housing Corporation (CMHC) released a report indicating that restoring housing affordability to levels seen in 2004 is no longer feasible. Instead, the agency will now consider 2019 pricing as a more realistic standard. This pivot reflects profound changes in the housing landscape fueled significantly by the impacts of the COVID-19 pandemic.

The Current State of Housing Prices

Despite a decline in home values over the past three years, the typical Canadian home still commands a price around $700,000—a staggering 30% increase since 2019, according to data from the Canadian Real Estate Association. The situation is compounded by escalating rental costs, which have surpassed $2,000 per month on average nationally. These figures raise alarms about the growing chasm between home prices and wage growth, pressing the issue of affordability to the forefront of national discourse.

The New Benchmark: 2019 Prices

The CMHC’s choice to adopt 2019 as the new affordability benchmark arises from observations about the shift in living and working dynamics caused by the pandemic. Before 2020, Canadians enjoyed relative economic stability, with housing expenses being more manageable compared to average incomes. However, the pandemic ignited a dramatic rise in home prices as remote work policies took hold, prompting many residents to relocate to less expensive areas. Cities like Barrie and Chilliwack saw property prices leap nearly to $1 million.

The Challenge of Doubling Homebuilding

To restore affordability to pre-pandemic levels, CMHC estimates that Canada must significantly ramp up home construction, targeting nearly 500,000 housing units annually over the next decade. This goal echoes recommendations made in the agency’s initial housing supply shortage report released in 2022, which suggested the need for 3.5 million new homes by 2030.

The necessity for such a monumental increase is stark. Without it, CMHC predicts housing prices will continue outpacing income growth, leading to dire consequences for many households. For instance, if current building rates persist, Toronto’s average home could soar to $1.9 million by 2035, reflecting a staggering 63% increase.

Regional Variations and Economic Impacts

Although the nation grapples with broad trends, regional disparities amplify the challenges. CMHC’s research indicates that in addition to Toronto, areas like Ottawa-Gatineau could see average home prices reach approximately $914,949, marking a nearly 52% increase by 2035. Conversely, without significant building efforts, Nova Scotia might witness an average increase of 13.5%, bringing typical prices to about $579,703.

In stark contrast, should Canada succeed in doubling its homebuilding pace, price growth would not only decelerate but could potentially reverse. For example, CMHC projects that home prices in Toronto might still rise by around 20% over the next decade, while they could decrease in regions like the Ottawa-Gatineau area and fall sharply in Nova Scotia.

The Psychological Shift in Housing Investment

As supply increases, perceptions surrounding real estate investments may shift significantly. Aled ab Iorwerth, CMHC’s deputy chief economist, posits that more housing supply could temper aggressive bidding in real estate markets. Canadians might begin viewing housing less as a guaranteed investment and redirect their savings into alternative avenues like the stock market or money markets.

Conclusion

The CMHC’s reevaluation of housing affordability benchmarks is an essential step in addressing the complexities of Canada’s housing crisis. While the task ahead is formidable, with a target of doubling housing construction in the coming decade, the potential to reshape the market is equally significant. It will take collective action from government, real estate developers, and communities to navigate this landscape successfully. Only through concerted efforts can Canada hope to create a housing environment that is equitable and sustainable for its citizens.

The challenge is profound, but the goal—to restore affordability and achieve a balanced housing market—is one that remains critical for the future of Canadian society. As we face these housing challenges, it is imperative to engage in discussions about innovative solutions, sustainable development, and the importance of maintaining a diverse range of housing options for all Canadians.