House equity

Housing affordability at the heart of inequalities

The housing affordability crisis in Canada is a significant concern, especially for young people trying to buy a home.

Extensive international research links tighter land use regulation with reduced housing affordability. Vancouver and Toronto are experiencing significant net migration of people to other markets in British Columbia and Ontario, where housing tends to be less expensive. But housing affordability is deteriorating in markets with excessive land use regulations.

This is illustrated by Demographia Housing Affordability in Canada, a report just published by the Frontier Center for Public Policy. It assesses housing affordability in 46 Canadian markets (census metropolitan areas or CMAs).

Vancouver has a median price to pre-tax household income (median multiple) of 13.3, which has more than tripled over the past half-century. In Toronto, the median multiple is 10.5, nearly tripling since 2000. Vancouver and Toronto are the third and 10th least affordable among 92 markets in eight countries: Australia, Canada, China, Ireland, New Zealand , Singapore, United Kingdom and the United States.

Besides neighboring Toronto, extremely unaffordable Ontario markets include Hamilton, Oshawa, Cambridge, Peterborough, Kitchener-Waterloo, Barrie, Guelph, St. Catharines-Niagara, Brantford and London. Further afield, Belleville and Kingston are also very unaffordable.

During the pandemic, extremely unaffordable housing has occurred in Montreal, Ottawa-Gatineau, Halifax, Charlottetown and Whitehorse. But some markets are much more affordable, especially in the Prairies, Atlantic Canada and Quebec, outside of Montreal. Among the major markets, the most affordable are Edmonton (3.6), Quebec (3.7), Winnipeg (4.0) and Calgary (4.0).

However, only three of 46 Canadian markets are rated “affordable” (median multiples of 3.0 or less): Fort MacMurray (2.1), Saguenay (2.8) and Moose Jaw (3.0). Others are classified as “moderately unaffordable”, with median multiples of 3.1 to 4.0: Cape Breton, Fredericton, Regina, Saskatoon, Medicine Hat, Trois-Rivières, Saint John, St. John’s, Thunder Bay and Moncton.

There are growing concerns about inequality because housing affordability is at the very heart of inequality. When house prices triple relative to incomes, homeowners in rising markets gain ground, while those in less rising markets lose ground. Younger households, even those already in an expensive market, face greater inequality. Finally, tenants – without home equity – face the greatest losses. The reality is that when house prices rise faster than incomes, inequality inevitably rises.

Governments are one of the main sources of this inequality through their land use regulations coupled with decreasing housing affordability. A prime example is the policy of “urban confinement”, which includes strategies such as urban growth limits, green belts and agricultural reserves. These policies aim to halt urban sprawl but have driven up land prices in the remaining urban areas where new homes can be built. Prior to the pandemic, all markets classified as severely unaffordable in Demographia International Housing Affordability were subject to city lockdown regulations.

Higher land values ​​resulting from urban containment policies are the main problem. Home construction costs do not vary significantly across the country. For example, the cost per square foot to build an average single-family home in the Vancouver or Toronto markets is no more than 30% higher than in Winnipeg. Yet higher land values ​​drive up the average price of single-detached homes by 340% in Vancouver and 225% in Toronto, compared to Winnipeg.

Moreover, these prohibitive land costs are largely beyond the control of all municipalities in major markets, such as Vancouver, Toronto and Montreal. Significantly high land values ​​on the urban periphery and throughout the urban area are largely dictated by provincial laws and policies.

Where housing has become extremely unaffordable, policies should be restructured to reduce the value of outlying land so that house prices generally do not rise faster than incomes.

Perhaps the greatest imperative is to preserve the affordability that already exists in markets where housing affordability has not deteriorated. These markets would include CMAs like Edmonton, Regina, Winnipeg, Quebec, Moncton and a number of other markets where a modicum of affordability has been retained.

Wendell Cox is a senior fellow at the Frontier Center for Public Policy and director of Troy Media