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In recent years, the news media have declared a “housing affordability crisis.” House prices were soaring in most cities, rising far faster than incomes. At one stage earlier this year, rents in the Greater Toronto Area were up 20 per cent year-over-year. But what do these data really tell us about the affordability problems faced by Canadians?

“Rents in the GTA are up 20 per cent” makes us think all renters faced a 20 per cent hike. But that’s not true. The 20 per cent increase applies only on units advertised for rent (on But they are a tiny share of all rental units. Most rental units in Ontario are regulated and the guideline increase is 1.2 per cent this year and 2.5 per cent next. The vast majority of GTA renters will therefore have a rent increase well below the rate of inflation. The households that do face big increases are those wanting to move and those just coming into the rental market — immigrants, refugees and post-secondary students, for example.

Same story for owners: until recently, house prices were rising dramatically and the income needed to buy the average house kept rising (even though mortgage interest rates had been falling). But was housing affordability for most owners getting worse? Absolutely not. As prices rose, existing homeowners paid no more for their housing; indeed, they got better off because the value of their home rose and their equity in it grew. Only those trying to enter the ownership market — the would-be first-time home-buyer — faced an affordability problem.

In brief, over the past five years, most renters have faced modest rent increases and most owners have become better off. Is this really the stuff of a housing affordability crisis? Could it be the media are more interested in bold headlines and clicks than in analysis?

Canada Mortgage and Housing Corporation (CMHC) seems to have wandered off in this direction, too. In June, it issued a report estimating “what is needed to solve Canada’s housing affordability crisis.” But the only indicator of housing affordability it used was shelter cost as a share of disposable income when the average household buys the average house. As we’ve seen, this is a good indicator of the problems faced by first-time home-buyers but it tells us little about existing owners and nothing about the affordability problems of renters. Even so, CMHC declared a housing affordability crisis and concluded “there must be a drastic transformation of the housing sector” — which is strange because just a few years ago it said “Canada has one of the best housing systems in the world.”

The report is even more puzzling for being out of sync with both Canada’s National Housing Strategy and earlier CMHC analysis of housing affordability. In the 1980s, CMHC developed a comprehensive framework for analyzing housing problems: what it called “core housing need.” It’s a concept based on social norms. The idea is that all Canadians should have housing that is adequate (in good repair), suitable (with enough bedrooms for its family type and size) and affordable (costing less than 30 per cent of before-tax income).

These norms imply three potential problems: housing that is too small, in need of repair or not affordable according to this 30 per cent of income test. Canada’s National Housing Strategy, which Ottawa launched in 2019, uses core need as the fundamental measure of housing problems and has an official target of removing 530,000 families from core need over 10 years.

Half a million families is a lot of families. But core housing need has actually been falling over the past 20 years. Every two years, in collaboration with Statistics Canada, CMHC has been conducting the Canadian Housing Survey, which is where the numbers on need come from. In  2001, 13.7 per cent of Canadian households were in core housing need. The most current data are for 2018, when 11.6 per cent of households were. The 2020 data will be available in a few months and likely will not show much if any increase, given the scale of pandemic income-support programs in 2020. If you are among the almost 90 per cent of Canadian households who do not have core housing need, you can certainly sympathize with fellow citizens who do. But you should not get carried away in the rhetoric of crisis.

Within core need, affordability is far and away the largest category. About 11 per cent of Canadian households have a core need affordability problem. Most are low-income renters. These are the Canadians with the most severe housing affordability problems. But the problem is their lack of income, not some malfunctioning of the housing market.


Story by: Financial Post