Victoria’s housing market has often been eclipsed by its counterpart in Vancouver, but over the past few years, the city’s been quietly catching up — and now ranks with Vancouver and Toronto as one of the least affordable cities for homeowners in Canada.
That’s the conclusion from the Royal Bank of Canada (RBC) in its latest housing trends and affordability report. The report is based on RBC’s Housing Affordability Measures, which determines how affordable Canadian cities are based on the proportion of pre-tax household income that the average homeowner has to use to service an average mortgage (principal and interest), as well as property taxes and utilities.
Vancouver and Toronto have consistently ranked as the two least affordable cities in RBC’s reports, and this time is no different. In Vancouver, homeowners dedicate an average 88.4% of their income to mortgage and other housing payments — a “never-before-seen level” in Canada, according to RBC. This number is up 8.2 percentage points compared to the same time last year, and up 1.6 percentage points between the first and second quarters of 2018.
Things are slightly better in Toronto, though not by much: RBC reported that homeowners need to spend 75.9% of their income on housing costs in Canada’s biggest city — up 1.8 percentage points year-over-year.
Due to its proximity to Vancouver, Victoria has never lagged too far behind in terms of housing costs. But this year, after the amount of income that Victoria homeowners have to dedicate to housing climbed by 2.4 percentage points in the second quarter — the biggest increase of any housing market between the first and second quarters — the city has caught up even more to its big city counterparts.
Victoria residents now have to spend 65% of their income service their mortgages.
That is well above the national average: 53.9%.
The reason affordability continues to decline so quickly, according to RBC, is because of interest rates, not higher housing prices. Excluding Vancouver, the pace of price increases in other cities has been gradual.
“Since the middle of 2017, it’s been rising interest rates that have been the main factor squeezing affordability,” the report said. “We’ve seen a material rise in mortgage rates since the Bank of Canada launched its hiking campaign in July 2017 and this kept ownership costs on a steep upward trajectory despite home prices stabilizing.”
RBC also cited stricter government regulations, especially those introduced in British Columbia last year, and the Office of the Superintendent of Financial Institutions’ stress test rules, as contributing factors.
But it’s not bad everywhere. RBC noted several Canadian markets where home ownership is still largely affordable, including Ottawa, Winnipeg, Quebec City, and Halifax.
Still, pricing pressure is continuing to affect most.
“RBC’s aggregate measure increased by 1.6 percentage points 88.4% in the Vancouver area, 1.8 percentage points to 75.9% in the Toronto area and 2.4 percentage points to 65.0% in Victoria,” the report read.
“These represented the worst ever levels on record since the mid-1980s in all three markets. No wonder the current generation of local buyers feels overwhelmed — no other generation has faced as much affordability pressure in this country.”