The Affordability Challenge Continues: RBC Report Shows Higher Ownership Costs Across Canada

A report by RBC Economics and Assistant Chief Economist Robert Hogue has shown that Canadian housing affordability has reached its worst-ever levels in six cities across the country. The downturn in affordability has been caused by interest rate hikes pushing ownership costs to record levels, although the downturn has moderated since the fall. RBC predicts that the housing market is close to a cyclical bottom.

Interest rate hikes have dominated the Canadian housing market in 2022, leading to ownership costs reaching record highs. Higher rates alone added 3.7 percentage points to RBC's aggregate affordability measure in Q4 2022. However, the situation is self-correcting, with the harsher buying conditions leading to depressed home resale activity and downward pressure on prices. Lower property values have already had a beneficial impact on affordability in the past two quarters, but so far, the impact has been insufficient to offset the toll caused by higher rates.

For now, affordability is at its worst-ever level in Victoria, Vancouver, Toronto, Ottawa, Montreal, and Halifax in the fourth quarter. Ownership costs are also higher than usual in virtually every other market except possibly Edmonton. The national aggregate measure is now up 21.5 basis points since late-2021.

The year-long market downturn has moderated significantly since the fall, with home resales reaching a low not seen since the 2008-09 global financial crisis (excluding the lockdown period). RBC sees a bottom forming this spring, with some markets potentially ahead of the pack, such as in Ontario and possibly Atlantic Canada. Other markets, such as in the Prairies and Quebec, may lag somewhat. Prices are expected to level out a few months later, provided the Bank of Canada keeps its fingers off the trigger, as RBC predicts.

Housing affordability is a growing concern for many Canadians. The Organization for Economic Cooperation and Development (OECD) found that housing costs for Canadians have risen dramatically, putting a strain on many households. A lack of affordable housing stock, which has been a major problem in cities across Canada, has compounded affordability concerns.

The Canadian government has introduced measures to address affordability, such as the First-Time Home Buyer Incentive and the Canada Housing Benefit, but many experts say that more needs to be done. One solution to the housing affordability issue in Canada could be to increase the supply of affordable housing. Purpose-built rental housing can provide affordable housing options for many Canadians, and it can also provide a stable source of income for developers and investors. Increasing the availability of social housing is another solution that could help to reduce the cost of housing for low-income households.

In conclusion, the Canadian housing market is facing a significant affordability issue, with affordability reaching its worst-ever levels in six cities across the country. Interest rate hikes have been the primary driver of the downturn, and while the situation is self-correcting, more needs to be done to ensure that all Canadians have access to safe and affordable housing. Increasing the supply of affordable and social housing, as well as innovative financing models, could help to address the affordability issue in Canada.