Housing affordability gap getting bigger

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The difference between household income and what homebuyers can qualify for just keeps growing

The gap in Toronto between what the average household is able to afford and what they need to make in order to afford the average-priced home is the second-highest in the country behind Vancouver at $95,465, according to a new report from Ratesdotca, provider of a digital marketplace for insurance and financial services.

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Victor Tran, a mortgage and real estate expert with the firm said “the current economic environment is not encouraging for many would-be homeowners, who may be uneasy taking on a large debt such as a mortgage in uncertain times.

“While slow sales have brought down prices in some markets, in traditionally tight markets such as Toronto and Vancouver, prices remain high. We are unlikely to see significant price decreases in traditionally desirable markets in the near future.”

Using data from Statistics Canada and adjusting for “annual wage growth percentages based on estimates from Normandin-Beaudry, an actuarial and total rewards consulting services company, Ratesdotca calculated the amount of mortgage the average household could afford.

It then compared that number to the income the average household would need to make in order to afford a mortgage on the average-priced home.

“In some cities, such as Toronto, the gap is significant enough to represent an entire salary,” the firm said. “In other cities, such as Montreal and Calgary, affordability is more balanced, with a surplus, rather than a gap.”

The report noted that with the average price of a home in Toronto at $1.06 million, purchasers would need to earn upwards of $232,000 to qualify for a mortgage.

The reality being that that a typical family “only qualifies for a maximum mortgage of $574,000. This leaves most families scrambling to make up an income shortfall of (nearly) $100,000 if they want to buy a house.”

Other key findings included:

• The wage gap in Vancouver is even worse than Toronto. It totals $121,053.
• Housing in Alberta “remains more accessible with Calgary offering an $18,643 income surplus and Edmonton leading with a $50,604 surplus.”
• Rising housing costs have driven migration trends with “Toronto losing 100,000 residents and Vancouver and Montreal experiencing similar declines as residents move to more affordable areas.
• As for condos, they are more affordable but in Toronto the income shortfall is $21,465 whereas in Edmonton “condos offer an impressive surplus of $91,914.”

In markets like Toronto and Vancouver, said Tran, the gap has steadily increased significantly in the past five years due to the fact, land to build more housing is so scarce.

But even if new zoning for development occurs, “affordability is still going to be an issue. Unless people can come up with a higher down payment their income can only qualify for so much. It’s difficult to find a new job in order to get a substantial increase in income so it just really comes down to how much more money can you get to contribute to the down payment.”

Tran added that while home sales will no doubt continue “unfortunately, a large percentage of the population will not be able to enter the market, especially in the GTA. I find a lot of younger people in their 20s and 30s are kind of giving up on that dream of owning a home. (Fortunately) rents are coming down and it’s not the end of the world if you continue renting.”

There is, he said, “nothing wrong with renting. If we look at people in Europe and Asia, it’s totally fine for them to rent for the rest of their lives. They’re just happier in general – they’re not tied to their debt.”