Toronto homeowners are spending 72% of their income on housing

By: Dominic Licorish on June 29, 2017

Housing affordability continues to deteriorate across the country — but especially in Toronto — according to a report released on Thursday by the Royal Bank of Canada.

The report, which measures home ownership costs as a percentage of median household income, found Toronto closed in on Vancouver in the first quarter of the year as the most unaffordable place to live in the country.

In Vancouver and Toronto, the aggregate percentages spent on housing are 79.7% and 72% respectively. The Canada-wide aggregate is much lower at 45.9%, but even that is still a historically high percentage. Experts recommend keeping your spending on housing to roughly one-third of your income.

Affordability did see a slight improvement in Vancouver in the first quarter, with spending on home ownership falling 1.2 percentage points from 80.8% in Q4 2016. That, of course, is still a wildly unprecedented level for Canada. Vancouver’s costs have also spread to nearby Victoria, where people are spending 56.7% of their income on homes. That’s a seven percentage point increase year-over-year.

A big concern for experts now is how all of this is going to play out if we see a rate hike — which is now a strong possibility as early as July 12. According to the RBC report, a one percentage point (ppt) increase in the key interest rate would raise home ownership costs by 3.5 ppt across the country. In Toronto and Vancouver, where affordability is already stretching limits, home ownership costs would jump by 5.5 ppt and 6.5 ppt, respectively.

With home ownership rates hovering near the 70% mark, that means homeowners would seriously face the possibility they’d run out of money to spend on necessities.

In the GTA, we’ve yet to see any impact on affordability from the government’s Fair Housing Plan, which has been in place for about two months. The plan’s original aim was to ease affordability pressure in the area, and it has successfully shaken the market up, turning it from a seller’s market to being on the verge of a buyer’s market according to one real estate agent.

Luckily, RBC says that other markets in Canada have seen housing affordability remain fairly stable. Atlantic Canada continues to be the most affordable area to live in Canada. Home ownership costs in Atlantic cities were all less than one third of median income for Saint John (26%), Halifax (31.5%) and St. John’s (28.6%).