Charles St-Arnaud, chief economist at Alberta Central, the central bank of the province’s credit unions, began his survey with a simple question: how far would prices have to fall, or incomes have to rise, to make homes accessible again? in Canada?
The answer for most Canadian cities is “too much.”
St-Arnaud’s research, published this month, represents a major obstacle to efforts to make housing in Canada more affordable. This suggests that the proposals put forward by many politicians – building more homes at lower prices by increasing supply – are unlikely to make much of a difference.
By most measures, homes are now so expensive in much of Canada that affordability has hit a four-decade low. In the early 1980s the contraction was created by mortgage rates above 18%. Today, of course, it is the product of a sharp increase in prices that occurred over a decade and accelerated during the pandemic. That increase eased slightly when the Bank of Canada raised interest rates, but so far that hasn’t meant a substantial drop in prices.
In cities where the Canadian real estate craze has been strongest, St-Arnaud’s findings are surprising. I calculated that, based on current incomes, prices would drop 39% in Toronto, 33% in Vancouver and 30% in Montreal. Or, to reverse the situation, incomes would have to grow by 65% in Toronto, 50% in Vancouver and 43% in Montreal.
Mr. St-Arnaud found some good news. Homes remain affordable in Calgary, Edmonton and Winnipeg. (For his calculations, St-Arnaud defined affordable housing as consumption that does not exceed 30% of the owner’s after-tax income, including utilities, property taxes and insurance. He also assumed that homeowners put 20% of the purchase price into a down payment and spread the mortgages over 25 years – the typical arrangement in Canada.)
He told me that as the numbers became clear, he became increasingly desperate for young Canadians who were “trying to have a home, start a family and make it.”
The position of the federal government and most provinces is that by stimulating new housing construction, Canada can have affordable homes without lowering the value of existing homes. While St-Arnaud agrees that building more homes will help maintain affordability, he is skeptical that this will be enough to make homes truly affordable. And I noted that few, if any, politicians would have an interest in resisting the political backlash that would result from any action that would lower the value of many Canadians’ most prized possessions, perhaps substantially.
“There are a lot of homeowners right now whose home is their only asset,” he said. “All their money goes to their house. They have no pension funds or savings. Their home is everything. So if it doesn’t appreciate anymore, it could put some financial strain on some of them.
When I spoke to Robert Hogue, RBC’s assistant chief economist, he told me he agreed that dramatic drops in home prices that would restore affordability in cities where housing is unlikely to happen are unlikely. housing has become unaffordable. (I didn’t bother asking him what the probability of a 65% increase was for residents of those cities.)
If anything, he said, this would require builders to build more homes than Canada has the capacity to build or to build beyond what builders’ budgets can profitably support.
However, he is more confident about the affordability of rental housing, which is now also very expensive in many cities. One lesson of the pandemic, he said, is that when students no longer flock to cities and some residents move from urban centers to rural areas, an increase in supply can quickly lead to lower rents. Simply increasing the vacancy rate to 3%, Hogue said, would make a substantial difference.
“The owners depend on an income stream,” he told me. “If a unit isn’t occupied for a few months, they’re much more willing to deal.”
But Hogue added that Canadians won’t have to give up home ownership. Although Canada’s homeownership rate declined between 2011 and 2021, it remained stable robust 66.5%..
But in the future, property will come, he said, with “some compromises” in highly unaffordable cities.
In places like Toronto and Vancouver, Hogue said, many buyers, particularly those new to the market, will have to abandon thoughts of a single detached home near downtown and settle for a condo far from the city center. Others may have to move to provinces with lower real estate prices, such as those in Atlantic Canada.
Conor Dougherty, my colleague on the Business desk, wrote about a commitment made to the U.S. housing market: subdivisions of single-family homes as small as 400 square feet.
[Read: The Great Compression]
“Property affordability is a difficult issue to resolve,” Hogue said. “Probably some progress can be made, but to get the situation back to where it was in 2004, I think is a stretch.”
He added: “The dream of ownership will still be possible, but it will be different to what would be ideal for many people.”
Trans Canada
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A London, Ontario judge has ruled that the deadly rampage of a man who drove his truck into five members of a Muslim family, killing four and injuring a boy, was an act of terrorism driven by white supremacist ideology. .
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Louise Blouin grew up in the Montreal suburb of Dorval and made a fortune with her second husband by placing ads for used cars. Jacob Bernstein vividly tells the story of how, after decades as an art-world mogul and fixture of Long Island society, Ms. Blouin found herself representing herself at a bankruptcy hearing in Central Islip, New York , earlier this month.
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A study based partly on the Canadian experience found that about a quarter of menthol cigarette smokers quit within a year or two after the menthol ban was imposed.
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At the request of the New York Times, the Canadian Center for Child Protection conducted an analysis and discovered “images of child sexual abuse involving multiple underage Instagram models from around the world,” my colleagues wrote Jennifer Valentino-DeVries and Michael H. Keller in their chilling investigation into parents who seek stardom for their underage daughters by posting their photos on Instagram. My colleagues added that in online forums, men sexually attracted to girls “often praise the advent of Instagram as a golden age of child exploitation.”
Born in Windsor, Ontario, Ian Austen studied in Toronto, lives in Ottawa and has written about Canada for the New York Times for two decades. Follow him on Bluesky: @ianausten.bsky.social.
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