Canada’s national housing agency says that getting back to pre-COVID affordability levels should be the aim of any plan to address the current housing crisis.

In a recent analysis, Mathieu Laberge, chief economist at Canada Mortgage and Housing Corporation (CMHC), pointed to data showing that affordability in both the housing and rental markets experienced a sharp decline between 2019 and 2023, coinciding with the peak of the COVID-19 pandemic.

“Although many affordability indicators deteriorated between 2004 and 2023, the deterioration was most substantial during the COVID period,” Laberge says in his analysis. “Notably, the vast majority of homebuying and homeownership affordability indicators across all urban centres showed a clear deterioration between 2019 and 2023.”

The impact on homebuying was especially notable in Toronto, where the minimum down payment required for a median-priced home—expressed as a percentage of the area’s median income—rose to 417% in 2023, up from 239% in 2019. In Vancouver, it increased to 441% from 233% over the same period.

In November, the average home price in the Greater Toronto Area was $1,106,050. Meanwhile, last month’s benchmark price for homes in Metro Vancouver was $1,172,100.

“Toronto and Vancouver stand out in terms of homebuying affordability challenges, which seem to be structural,” says Laberge. “These markets have faced harsh financial conditions for several years, and solutions may require deeper changes than elsewhere in the country.”

Renters struggling with cost of living

CMHC data also showed that renters nationwide are struggling with cost of living pressures from inflation in the post-COVID period, which Laberge says is limiting their purchasing power and, ultimately, their capacity to cope with higher housing costs.

The figures show that the annual variance of so-called “non-sheltered expenses”—in essence, a basic basket of goods and services—for a family of four has increased substantially in all major urban centres between 2019 and 2023.

“This is still a cause for concern in the rental market,” says Laberge. “More expensive homebuying means more Canadians are remaining renters for longer, putting additional pressure on the rental market.

Addressing pressure on the housing market

The housing agency’s analysis comes as the federal government faces increased pressure to tackle the country’s housing shortage.

In October, the Liberal government announced a reduction in the number of immigrants it will admit over the next three years, aiming to alleviate growing pressure on the housing market.

“The pressures on housing and social services require a more sustainable approach to welcoming newcomers,” said Immigration Minister Marc Miller when the cuts were announced. “These lower permanent resident targets are expected to reduce the housing supply gap by about 670,000 units by the end of 2027.”

However, the Office of the Parliamentary Budget Officer (PBO) warned in a report released last month that there were “significant risks” to the government’s projections.

“Both the estimated reduction in household formation and the housing gap under the immigration levels plan are uncertain and likely represent upper-bound estimates,” the PBO stated in its report, noting that their projections show a housing gap of 658,000 homes by 2030, compared to Miller’s forecast.

For Laberge, addressing the crisis involves examining how policy can return to the affordability levels seen before the pandemic.

“The first step in resolving a crisis is being transparent about what is possible and when,” he says. “Focusing on fixing the more recent and less entrenched situation and directing efforts to getting back to pre-COVID housing affordability across the country may not fix every challenge, but it would bring relief to many Canadian families. As such, using a pre-pandemic year as our affordability benchmark makes sense.”

Canada Mortgage and Housing Corporation CMHC Editor's pick housing affordability housing market housing supply gap Marc Miller Mathieu Laberge Parliamentary Budget Officer pbo

Last modified: December 10, 2024