Housing affordability has officially reached “crisis” levels in Vancouver, where a combination of still-rising home prices and high interest rates is making home ownership nearly impossible to access.
The “crisis” was called by the Royal Bank of Canada in the bank’s most recent housing affordability report, released Tuesday. The report measures affordability by looking at the proportion of median pre-tax household income needed to cover average home ownership costs (mortgage payments, property taxes, and utilities) in any given region in Canada.
Unsurprisingly, Vancouver was the city that fared worst for affordability. Residents with aspirations to own would need to dedicate a staggering 87.8% of their income to housing costs. That’s 81.4% more than what homeowners across all of Canada would spend on average — which is 48.4% of their income.
These numbers were calculated for the first quarter of 2018, and make for the worst affordability levels on record for the city, said RBC. Higher interest rates and home prices — which keep going up in spite of the aggressive parade of housing measures that the municipal, provincial, and federal governments introduced in recent years — are the main culprits.
The effects of the crisis can be seen in sales activity. According to RBC, home resale activity dipped by 25% in the first quarter of 2018 — a circumstance that can be attributed in part to the “stress test” rules introduced by OSFI on Jan. 1, which made it harder for aspiring homeowners to qualify for a mortgage, but which can also be traced back to the Vancouver market’s lack of affordability in general.
The city’s record-breaking affordability levels comes after a brief improvement in affordability between late 2016 and early 2017.
The rest of Canada fared much better than Vancouver. The average homeowner currently needs to dedicate 48.4% of their income to housing expenses, but in the last quarter of 2017, homeowners only had to set aside 48% of their income for housing.
The slow pace of change in the rest of Canada can be attributed to dropping home prices in Toronto, the country’s biggest market, as well as a modest increase in average household incomes. The main factor making affordability worse instead of better? High mortgage rates.
Along with Winnipeg, Toronto is only one of two major cities in Canada where affordability has actually improved instead of worsened. In addition to dropping home prices, RBC attributes this improvement to OSFI’s “stress test” rules as well as the Fair Housing Plan rolled out by the provincial government last year.
“This represented the second-consecutive improvement in affordability in the area,” the RBC report said of Toronto.
“There’s still a long way to go before Toronto homebuyers enjoy meaningful relief though.”