Will Toronto ever be affordable again?
That’s the intriguing question posed by a June article in Storeys that included these striking statistics: The average mortgage payment now accounts for 83 percent of gross income in Toronto, and 95 percent in Vancouver. What makes these figures so astonishing is that affordability has typically been defined as a mortgage or rent payment that is a third of gross income or less. Given this incredible mismatch between prices and income, some observers wonder if unaffordability will be the new reality for these two metropolitan areas, as far as the eye can see. The median home price in Toronto is now $1,137,570, which would normally require a down payment of $227,514. Doing the math, it would take the average worker in the province nearly a quarter century to save up that amount. In addition, to qualify for such a mortgage, the worker would need to earn $230,923. Once the sale is complete, the new homeowner would be on the hook for a monthly payment of $6,338. No wonder that Vancouver developer Michael Geller told Storeys, “The more I read about people working in restaurants and people earning minimum wage, I wonder how they manage.” He added: “I think unfortunately we are always going to have a situation now where even people of average income are going to really struggle, and people of lower income will only be able to be housed through government subsidies and assistance.” Market forces have been slow to work their magic. In May the Bank of Montreal released a study of housing affordability that suggested increased supply is likely to solve the problem, or even to occur. “While most argue for a supply-side fix, our longstanding view has been that it’s wishful thinking to believe that an industry, already running at full capacity, can double output in short order, flood the market with new units and bring prices and rents down,” contends the report. Even in the current environment of escalating interest rates, price drops have been minor in the Toronto and Vancouver housing markets. Any dramatic decreases are likely to give developers less incentive to build additional units, according to the Bank of Montreal. One variable is the record pace of immigration to Canada, which disproportionately affects major urban centers. According to a report by the Canada Mortgage and Housing Corporation (CMHC), population growth will put sustained pressure on supply for decades. By 2030, CMHC estimates there will be two million new households in Canada — two million people who need homes, but may not be able to find affordable options in the marketplace. Adding additional complexity to the issue is the fact that a return to affordability would present its own set of negative consequences. As financial commentator Clay Jarvis told Storeys: “We’re dependent on real estate for driving both GDP and personal wealth in this country, so if some silver bullet policy magically brought home values back to where they were in 2013, we’d be looking at pure economic carnage.” Comments are closed.
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AuthorLarry Weltman is a Customer Service Representative for AccessEasyFunds Limited, or AEF, an Ontario-based firm Archives
November 2022
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