Two recent reports highlight an issue that keeps many people awake at night.
It’s about housing affordability in Canada, and how the situation is getting worse.
RBC Economics and Sotheby's International Realty Canada approached the issue from different angles, but arrived at a similar outcome.
The bottom line is that homeownership has become costlier, and for the top-tier market, high-end properties are expected to get even more expensive.
In the Vancouver metropolitan area, the cost of owning a home as a percentage of income in the second quarter of 2021 rose to 63.5 percent of household income, based on RBC’s housing affordability measure.
The bank’s affordability measure for the region has averaged 57.8 percent since 1985.
Compared to the same period last year, the 63.5 percent ratio in the second quarter of 2021 represents a 4.9 percent deterioration.
RBC employs a housing affordability measure that shows the proportion of median pre-tax household income required to cover housing costs.
These costs include mortgage payments, property taxes, and utilities. These are measured against the benchmark price of all types of housing in a given market.
As RBC Economics explains in a report on October 7, the higher the measure, the less affordable owning a home is.
Bank economist Robert Hogue wrote that RBC’s aggregate affordability measure in the country worsened the “most in more than 30 years”.
The measure increased by 2.7 percent Canada-wide in the second quarter of 2021, which was the “biggest quarterly increase in more than three decades”.
This brought the RBC affordability measure to 45.3 percent across the country.
The measure has averaged 40.7 percent in Canada since 1985.
“Every market and housing category got less affordable,” Hogue wrote.
The measure was up 3.2 percent in Vancouver, 4.1 percent in Toronto; 3.1 percent in Ottawa compared to the previous quarter.
These three metropolitan areas “recorded the largest increases”.
“Overall, affordability is most strained in Vancouver (ownership costs represent 63.5% of household income), Toronto (59.1%) and Victoria (48.0%),” Hogue wrote.
In the Vancouver metropolitan area, the benchmark price was $1,238,100 for the aggregate of all housing type.
Meanwhile, “Ottawa (38.5%) and Montreal (38.4%) are two other markets where RBC’s aggregate measures look historically high.”
The bank economist doesn’t see relief soon in the report titled "Canadian home buyers see affordability slipping away fast".
He anticipates “affordability to become even more strained”.
“We expect home prices to continue to rise in the near term, as demand-supply conditions generally remain exceptionally tight,” Hogue wrote.
“This will further raise ownership costs across a wide spectrum of markets and housing categories,” he continued.
“That said,” Hogue added, “the affordability deterioration is poised to moderate. The rate of price appreciation is now slowing in many places, and we project prices to flatten in 2022.”
Meanwhile, luxury marketing firm Sotheby’s released a report on October 6, which predicted that the gap between high-end properties and conventional homes is “set to widen”.
“On one hand, luxury real estate consumers will continue to drive new levels of activity in the metropolitan and recreational housing markets to fulfill post-pandemic lifestyle needs and tastes,” Sotheby’s noted.
Demand from top-tier buyers will “place upward pressure on future high-end real estate prices”.
“This cohort will also be at the forefront of accelerating intergenerational wealth transfer into the single family home market,” Sotheby’s wrote.
“At the same time,” the firm added, “the desire for elevated levels of privacy and discretion amongst this cohort, will shift an increasing number of ultra-luxury transactions to exclusive global sales and marketing networks.”
On the other hand, “first-time buyers and conventional housing purchasers face increasing barriers, particularly in the single family home market, given rising prices, tighter mortgage qualification criteria and the risk of eroding buying power given recent inflation”.
“Sotheby’s International Realty Canada continues to underscore the urgent need for new housing supply across the rental, vertical, low-density and high-density spectrum to support residential mobility, and to ensure housing affordability for more Canadians,” the company stated.
In its report, Sotheby’s noted that overall residential sales over $4 million in the Vancouver region increased 13 percent year-over-year in July and August 2021.