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Toronto housing affordability at its lowest ever

An average household now spends 72% of its income on homeownership

by Vanmala Subramaniam
Jun 29 2017, 3:17pm

In the first three months of 2017, Toronto’s housing affordability deteriorated to its worst level ever since 1985.

A typical Canadian household would have had to spend 72 percent of their income on ownership costs of a home, if they had purchased it in Toronto between January and March 2017. This surpassed the previous peak of 70.6 percent that Toronto reached in 1990, upon which the market fell into a deep and prolonged slump, according to RBC Economics’ latest report on housing affordability.

Most financial experts agree that an average household should not spend more than a third of their income on housing.

Affordability is measured by calculating the proportion of pre-tax median household income that is spent on servicing a mortgage, property taxes, and utilities. RBC’s measure is based on a 25 percent down payment of a 25-year mortgage loan at at five-year fixed rate. The higher the measure, the more unaffordable a home is to the average Canadian.

Toronto homes may, however, start becoming more affordable.

Since the Ontario government introduced new measures to tame Toronto’s housing market in mid-April, home prices have dropped by roughly six percent. More importantly, the number of homes available for purchase have soared, pointing towards a much-needed flow of additional supply onto the market, as homeowners start cashing out.

“The Ontario Fair Housing Plan’s impact on affordability in the GTA may take up to two or three quarters to be felt, but our view is that it will bring some sanity back to the market — at least for a period of time,” wrote RBC economists Craig Wright and Robert Hogue in the report.

Vancouver still remains the most unaffordable city in Canada to own a house. The average Canadian household had to spend 79.7 percent of its income to service the costs of owning a home in Vancouver. At its peak, in early to mid 2016, the housing affordability measure in Vancouver was almost 83 percent.

The B.C. government’s imposition of a vacant home tax and a tax on foreign buyers in August 2016 sent home buyers flocking to nearby Victoria. After Toronto, it was the provincial capital’s housing affordability that eroded most significantly in the first three months of 2017.

According to RBC, the aggregate measure of housing affordability in Victoria rose to a seven-year high of 59.7 percent.

If you do however want to spend less than 40 percent of your income on owning and maintaining a home, move to these cities — Calgary, Edmonton, Saskatoon, Regina, Winnipeg and even Ottawa.

The measure of housing affordability in Calgary for instance, stood at 39.6 percent, a 0.8 percent rise from the previous quarter. Although home prices in Calgary have dropped in the last few years because of the oil bust, incomes have also gone down, contributing to that slight decline in affordability.

Montreal’s housing market has continued its upward trajectory in the last six months, driven by a buoyant economy and rising employment. RBC’s aggregate measure for housing affordability in Montreal stood at 43 percent, a 1.6 percent increase from a year ago, and 3 percent higher than the long-run average of 40 percent.

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