TORONTO, ONTARIO – APRIL 23: Nathan Phillips Square and Toronto City Hall is seen during the coronavirus pandemic on April 23 2020 in Toronto, Canada. (Photo by Emma McIntyre/Getty Images)
Two Canadian cities have been deemed “impossibly unaffordable” after ranking among the top 12 most expensive housing markets in the English-speaking world.
A new report from Demographia named Vancouver as the third least-affordable city in the world while Toronto took 11th place on the list.
The report examined middle-income affordability across 94 major housing markets in Canada, Australia, China, Ireland, New Zealand, Singapore, the United States, and the United Kingdom. Each city’s house-price-to-income ratio was then ranked based on a score determined by dividing the median house price in a city by its gross average household income.
A score of less than 3 is considered “affordable,” while a score between 3.1 and 4.0 is “moderately unaffordable.” A score between 4.1 and 5.0 is listed as “seriously unaffordable,” and markets scoring between 5.1 and 8.9 are considered “severely unaffordable.”
Cities scoring 9 or higher were ranked as “impossibly unaffordable,” a new category added to the annual study this year.
Hong Kong topped the list of least affordable markets in the final quarter of 2023 with a score of 16.7, followed by Sydney at 13.3, and Vancouver at 12.3.
San Jose was fourth on the list at 11.9, followed by Los Angeles at 10.9, Honolulu at 10.5, Melbourne at 9.8, San Francisco and Adelaide at 9.7, San Diego at 9.5, and Toronto at 9.3.
Canadian Markets
Vancouver has long made Demographia’s unaffordable housing list, ranking as the first, second, or third least affordable major market for the past 16 years.
“Troublingly, impossibly unaffordable housing in the Vancouver market has also spread to smaller B.C. markets … such as Chilliwack, the Fraser Valley, Kelowna, and markets on Vancouver Island,” the study authors said.
“From 2015 to 2023, housing affordability worsened by the equivalent of 2.5 years of median household income in smaller markets outside Vancouver, an even greater loss than the 1.2 years in the Vancouver market itself.”
While Toronto didn’t rate quite as poorly as Vancouver for housing prices, its “impossibly unaffordable” median multiple of 9.3 is well above its pre-pandemic median multiple of 8.6, the report said.
Just like in B.C., the unaffordable housing epidemic has spread to smaller markets in Ontario, including Kitchener-Cambridge-Waterloo, Brantford, London, and Guelph, “as residents of metro Toronto seek lower costs of living outside the Toronto market,” the authors said.
“From 2015 to 2023, housing affordability has worsened by the equivalent of 3.3 years of median household income in smaller markets outside Toronto, a greater loss than the 2.6 years in the Toronto market itself,” they wrote.
While other cities in Canada had significantly lower scores than Vancouver or Toronto, that doesn’t mean they are affordable places to buy a home, the study found. Montreal with a score of 5.8 and Ottawa-Gatineau with its 5.3 ranking are considered “severely unaffordable.”
Calgary, with a median multiple of 4.6, was labelled “seriously unaffordable” while Edmonton, was “moderately unaffordable” with a score of 3.6.
None of the 94 cities listed in the study scored below three, which is the ranking required to be considered “affordable.”
Housing, Income Disparity
RBC assistant chief economist Robert Hogue said Canada’s housing affordability is at its worst in more than 30 years and described the Vancouver market as being in a “full-blown crisis.”
The median income needed to cover home ownership in the B.C. city came in at a “staggering” 106.4 percent, significantly narrowing the pool of potential buyers, Mr. Hogue said in a report earlier this year.
“Only a select few high-income earners can afford to buy, or considerable wealth must be amassed (or received) to put down towards a purchase,” he said.
In Toronto, he said, buyers have also been sidelined thanks to household incomes that don’t match the high cost of housing. Mr. Hogue calculated that affordability was at its worst in the first quarter of 2024, with average homeowners needing to spend 84.8 percent of their incomes on housing.
Housing and income disparity hasn’t always been an issue, the Demographia study noted.
Housing prices were three times or less than household incomes in most, if not all, the housing markets of New Zealand, Canada, the United States, Australia, the United Kingdom, and Ireland in the 1990s.
“For decades in the high-income world, a hallmark of a strong middle class was the widespread ability to own a home—house prices generally rose in line with household incomes,” the report reads. “However, this nexus has been broken in many markets, with house prices escalating far above household incomes.”
In Canada, the housing price-to-income ratio remained stable between 1980 and 2000, when it began a steady upward climb toward current levels. The housing price-to-income ratio varied little between 1980 and 2000, hovering between 3.2–3.5, according to Statistics Canada and Canadian Real Estate Association figures.
As of 2010, it had jumped to 5.9, and by 2020 it had hit 6.7. That means the average home price increased roughly 746 percent while the average household income rose only 295 percent.
Supply and Demand
A separate RBC Economics report released by Mr. Hogue in April said one of the main contributing factors to Canada’s high housing costs is the discrepancy between supply and demand.
It warned that the housing crisis in Canada would soon reach “even more alarming levels” if the federal government and other stakeholders don’t increase construction to meet demand.
Housing construction needs to increase by nearly 50 percent if Canada has any hope of keeping up with future demographic growth, according to Mr. Hogue.
If building alone was relied on to meet future demand, yearly housing completions would need to rise from the current three-year average of 218,000–320,000 between now and 2030, he noted in his report. He said higher deliveries would need to happen quickly to meet the expected peak population growth in 2023–24.
The Canada Mortgage and Housing Corporation, however, said it expects housing starts to decline this year due to higher interest rates. Its report predicted 224,485 housing starts in 2024.
While the RBC report identified high interest rates as an ongoing affordability issue, it is not the only reason for fewer new builds. The report pointed to the construction industry’s “capacity issue,” noting that the level of housing construction required “is far above anything ever achieved in Canada.”