Dream of home ownership 'eroding'

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Affordability remains ‘greatest barrier’: report

Affordability challenges and supply shortages are making it increasingly difficult to buy a home, locking a growing number of aspiring buyers into the rental market, according to a new report from RE/MAX Canada.

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“Affordability remains, by far, the greatest barrier to home ownership from coast to coast,” RE/MAX Canada Past President Christopher Alexander says of the Nation of Renters report. “With the average price of a home in most Canadian markets more than doubling between 2006 and 2021, first-time buyers are falling through the cracks.

“Rental rates that remain above historic levels, the high cost of living and wages that have not kept pace with price growth pose a serious challenge to buyers hoping to amass a down payment,” he says. “It’s near impossible for some buyers, even with steady, well-paying jobs. The dream of home ownership is eroding further and faster than their ability to save.”

AFFORABILITY BARRIERS

Soaring home prices, tough mortgage qualification rules and an ongoing supply shortage are among the factors driving the shift. Canada’s population growth continues to outpace new housing supply. The demand for rental housing, meanwhile, has surged, keeping rental prices high and making it even more challenging for renters to save for a down payment.

The erosion in affordability is “exacerbated” by the Office of the Superintendent of Financial Institutions (OSFI) stress test, which requires borrowers to qualify at rates two percentage points higher than the posted rate. Alexander maintains the test “has outlived its usefulness and is unnecessarily inhibiting capable, entry-level purchasers.”

Development charges are adding to the affordability crisis, the report notes. In Toronto, they rose to $189,325 per low-rise unit in 2022, up 21 per cent over 2020 levels and the highest level on record, according to the Canada Home Builders’ Association Municipal Benchmarking Study. Other markets have also experienced substantial spikes over 2020 levels:

• Hamilton: $61,431 (up 49 per cent)
• Vancouver: $61,414 (up 29 per cent)
• Ottawa: $46,320 (up 11 per cent)
• Calgary: $42,800 (up 15 per cent)
• Halifax: $9,629 (up 41 per cent)

‘MISSING MIDDLE’

Housing supply shortages contribute to rising prices. While builders and developers are “eager” to get shovels in the ground, projects need to be financially viable to proceed, the report says. “Constraints include high land costs and development fees, zoning restrictions, lengthy approval processes and other red tape.”

Beyond that, there’s a “disconnect” between what is being built and buyers’ needs, with smaller units overwhelming the market when more spacious “missing middle” product is “desperately needed” to support urban family living.

“Municipal, provincial and federal governments must move quickly to revise their housing plans, which have long focused on greater density, to ensure that the new housing mix matches the needs of residents. Policy shifts and zoning reforms will be necessary to support density and intensification goals,” the report says.

But rather than a “mismatch” between homebuilders and buyers, “what is getting built and the size of the units are a direct reflection of the market and the market’s ability to absorb that,” says Justin Sherwood, Building Industry Land Development’s (BIILD) senior vice president of research, stakeholder relations and communications.

It costs, on average, $1,100 to $1,200 a square foot to build a high-rise condo. “Essentially what’s getting built and the size of what’s getting built is a reflection of the cost to build as much as it’s a reflection of policy,” he says.

With land in Toronto at a premium, municipal and provincial policies designed to achieve as much density as possible are leading to smaller-sized units and denser living. “Ask any newly-formed family that’s just having kids what their ideal living accommodation is and everyone is going to picture a white picket fence and a front yard and a backyard,” says Sherwood.

“The reality is where policy and economics come together,” he says. With single-family homes, the land becomes a much higher proportion of the cost of the overall finished product. While a 30-storey condo might be on an acre and a half of land spread across 300 units, you might have four to six single-family homes on an acre of land “so it’s a different equation.”

MARKET OUTLOOK

Still, Sherwood recognizes that the cost to provide the finished product has “gotten out of line with the market’s ability or even willingness to absorb it…Something is going to have to change,” he says.

“Costs are going to have to come down and a lot of those costs are baked in by regulation and policy. Every couple of years, they’re bringing out a new building code and that building code adds cost. All of these things are conspiring to create an environment where it’s getting increasingly hard to provide the market with a product that people can afford.”

The RE/MAX report suggests potential solutions that include relaxed lending policies, longer amortization periods and incentives for first-time buyers.

Rental rates ‘frothy’

The January 2025 Rentals.ca-Urbanation Rent Report found that residential rental prices and vacancy rates have “moderated somewhat,” with the average price of a residential rental across six markets falling to a 17-month low of $2,109 in December 2024.

Still rates have remained “relatively frothy” in most major Canadian markets. A RE/MAX report says. Here’s a sampling of monthly rents for one-bedroom units in those six markets:

• Vancouver: $2,512
• Toronto: $2,360
• Halifax: $2,030
• Ottawa: $2,012
• Hamilton: $1,723
• Calgary: $1,606