Charles St-Arnaud, chief economist at Alberta Central, the central bank for the province’s credit unions, began his research with a simple question: To what extent would prices have to fall or incomes rise for housing to return to normal? be affordable? in Canada?
The answer for most cities in Canada is “too much.”
Mr. St-Arnaud’s research, released this month, presents a major obstacle to efforts to make housing in Canada more affordable. He suggests that the proposals offered by many politicians – building more houses to 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 its lowest level in four decades. In the early 1980s, the squeeze was created by mortgage rates of more than 18 percent. Today, of course, it is the product of a sharp price increase that occurred for about a decade and accelerated during the pandemic. That increase slowed a bit when the Bank of Canada raised interest rates, but so far that hasn’t meant substantial price drops.
In cities where Canada’s real estate mania has been greatest, St-Arnaud’s findings are surprising. He estimated prices would have to fall 39 per cent in Toronto, 33 per cent in Vancouver and 30 per cent in Montreal based on current revenues. Or, to turn things around, revenue would need to grow 65 per cent in Toronto, 50 per cent in Vancouver and 43 per cent in Montreal.
Mr. St-Arnaud found good news. Homes remain affordable in Calgary, Edmonton and Winnipeg. (For his calculations, Mr. St-Arnaud defined affordable housing as housing that consumes no more than 30 percent of its owner’s income after taxes, including utilities, property taxes and insurance. Also It assumed that homeowners put 20 percent of the purchase price down and spread their mortgages over 25 years (the typical arrangement in Canada).
He told me that as the numbers became clearer, he had become increasingly desperate for younger Canadians who were “trying to get a house, start a family and try to make it.”
The position of the federal government and most provinces is that by encouraging the construction of new housing, Canada can have affordable housing without reducing the value of current housing. While St-Arnaud agrees that building more homes will help affordability, he is skeptical that it will be enough to make housing truly affordable. And he noted that few, if any, politicians would have any interest in resisting the political backlash that would ensue if anything were done that would lower the value of many Canadians’ most valuable asset, perhaps substantially.
“There are a lot of homeowners right now whose home is their only asset,” he said. “All his money goes to his house. They do not have any pension fund or savings. Your house is everything. “So if it is no longer appreciated, it could create some financial strains for some of them.”
When I spoke to Robert Hogue, deputy chief economist at RBC, he said he agreed that drastic drops in house prices that would restore affordability in cities where housing has become unaffordable are unlikely. (I didn’t bother asking him about the likelihood of 65 percent increases for residents of those cities.)
At the very least, he said, that would require builders to build more homes than Canada has the capacity to build or build beyond what developers’ balance sheets can sustain profitably.
However, he was more optimistic about the affordability of rental housing, which is also now very expensive in many cities. One lesson of the pandemic, she said, was that when students no longer came to cities and some residents moved from city centers to rural areas, an increase in supply can quickly lead to lower rents. Just raising vacancy rates to 3 percent, Hogue said, would make a substantial difference.
“Owners depend on a stream of income,” he told me. “If a unit is not occupied for a few months, they are much more willing to negotiate.”
But Hogue added that Canadians would not have to give up home ownership. While the homeownership rate in Canada fell between 2011 and 2021, it still remained at a solid 66.5 per cent.
But future ownership will come, he said, with “some compromises” in highly unaffordable cities.
In places like Toronto and Vancouver, Hogue said, many buyers, particularly those just entering the market, will have to abandon the idea of a single detached house near downtown and settle for a condo far from the city center. Others may need to move to provinces with lower housing prices, such as those in Atlantic Canada.
Conor Dougherty, my colleague in the Business department, has written about a compromise that has hit the US housing market: single-family home subdivisions as small as 400 square feet.
(Read: The great compression)
“Property affordability is a difficult problem to solve,” Hogue said. “Some progress can probably be made, but to completely fix it back to where it was in 2004, I think is a stretch.”
He added: “The dream of homeownership will still be available, but it will be different from what would be ideal for many people.”
Trans Canada
-
A judge in London, Ontario, ruled that the deadly attack by a man who drove his truck into five members of a Muslim family, killing four of them and injuring a child, was an act of terrorism fueled by supremacist ideology. white.
-
Louise Blouin grew up in Dorval, a Montreal suburb, and made a fortune with her second husband publishing used car classifieds. Jacob Bernstein vividly tells the story of how after decades as an art world mogul and Long Island socialite, Ms. Blouin ended up representing herself at a bankruptcy hearing in Central Islip, New York, in early this month.
-
A study based in part on Canada’s experience has found that about a quarter of menthol cigarette smokers quit one or two years after the menthol ban was imposed.
-
At the request of The New York Times, the Canadian Center for Child Protection conducted a review and found “images of child sexual abuse involving multiple underage Instagram models from around the world,” wrote my colleagues Jennifer Valentino-DeVries and Michael H. Keller in his report. Chilling investigation into parents who seek stardom for their underage daughters by posting photos of them on Instagram. My colleagues added that in online forums, men sexually attracted to girls “frequently praise the advent of Instagram as a golden age for child exploitation.”
Originally from Windsor, Ontario, Ian Austen was educated in Toronto, lives in Ottawa and has reported on Canada for The New York Times for two decades. Follow him on Bluesky: @ianausten.bsky.social.
How are we doing?
We look forward to hearing from you about this newsletter and events in Canada in general. Send them to nytcanada@nytimes.com.
Do you like this email?
Forward it to your friends and let them know they can sign up here.