For years, we’ve heard that housing affordability in Canada has hit rock bottom. Despite some recent improvements, the new CMHC Housing Affordability Composite Index, launched today, shows it remains a major challenge. But this blanket statement overlooks how much housing affordability has eroded in Ottawa, Montréal and Halifax in recent years.

It’s clear the crisis is no longer limited to Toronto and Vancouver.

Housing affordability is shaped by several factors, not only how much housing is costing. It also includes having enough income to pay rent or a mortgage. It depends on supply and demand factors that determine how easy or hard it is to find a housing unit at a given price. In addition, it considers discretionary income that can be used to make space for a greater housing budget.

While many housing affordability indexes exist in Canada, most are based on a single indicator, resulting in an incomplete picture of the issue. Many also focus only on homeownership affordability, overlooking the rental housing market segment. This approach misses a key component of housing in Canada and the potential interactions between the rental and homeownership market segments.

CMHC’s Housing Affordability Composite Index addresses these shortfalls (see methodological notes below) and provides a more holistic view of housing affordability in Canada.

Homeownership Affordability : Regional Tectonic Plates Shifted in 2020

At the national level, the new index shows that homeownership affordability fell to its lowest point since the 1990s during the second quarter of 2022. However, conditions have slightly improved since then.

Focusing on recent affordability trends overlooks a slow and prolonged erosion that started in the early 2000s. The index shows that homeownership affordability peaked in the second quarter of 2001, followed by 3 distinct waves of erosion: from 2001 to 2007, from 2015 to 2020 and then from 2020 to 2023.

During the second half of the 1990s, housing affordability in all 7 centres analyzed remained above their collective long-term average. However, this shifted drastically between 2001 and 2007 and again between 2015 and 2020, as both Vancouver and Toronto became increasingly unaffordable to homebuyers. These first 2 periods of erosion in homeownership affordability were driven solely by these 2 markets.

From 2020 to 2023, homeownership affordability drastically changed: its deterioration accelerated sharply and was no longer driven by Toronto and Vancouver only. Affordability also deteriorated in Ottawa, Montréal and Halifax. In a recent article, we explained this was due to the labour mobility enabled by remote work opportunities during the COVID-19 pandemic.

But there are reasons for hope — since 2023, homeownership affordability has slightly improved across key markets. This was led by improved affordability in Ottawa, Toronto, Vancouver and Halifax. Homeownership affordability has also stabilized in Montréal, Calgary and Edmonton.

Rental Affordability : More Recent Erosion Driven by Overall Inflation

The erosion of rental market affordability differs greatly from that of homeownership affordability: it’s more recent and not as severe. It’s also driven by different factors. Increased demand for homeownership in centres outside Toronto and Vancouver contributed to the drop in homeownership affordability. At the same time, rental affordability across Canada was impacted by the sharp rise in inflation during 2022 to 2023 and high levels of immigration.

Unlike homeowners, renters typically have less discretionary income to manage broad inflationary pressures. This means it’s harder for renters to reallocate their spending or borrow funds in the short term to cover increased costs.

As a result, their housing budgets are more easily compressed, reducing their ability to pay for a rental unit, a significant factor in rental affordability. This explains why the erosion of rental market affordability occurred nationally in 2022 to 2023 and has since stabilized at a lower level.

Another significant difference between rental affordability and homeownership affordability is the regional divide. Rental affordability trends tend to be much more stable compared to homeownership trends.

For example, for the entire period under analysis, starting in 2006, rental markets in Toronto and Vancouver have been less affordable than the historical average of the 7 centres. In contrast, Montréal and Edmonton have remained more affordable through this entire period. Other centres, such as Ottawa, Halifax and Calgary, have gradually become less affordable to renters over the period.

Market Intelligence, A Key Complement to The Housing Affordability Index

Another interesting finding from our analysis is how aggregate affordability indices may overshadow underlying affordability trends in different market segments. Our market intelligence can help deepen our understanding of those diverging trends.

For example, it is now becoming clear that the elevated inventory of condominiums in Toronto and Vancouver is increasing supply in the rental market, as part of the unsold condos are directed to the secondary rental market. This is pushing vacancy rates higher and slowing rent growth in the higher-end purpose-built rental market, for which rental condos are a good substitute, as noted in our latest Rental Market Report. These more relaxed market conditions characterized by ample options available to potential renters, if sustained, may foster increasing affordability for these types of rental units (rental condos and higher-end purpose-built rental), relative to its historical average.

At the other end of the rental market spectrum, where more affordable rental units are found, our market intelligence points towards slower increases in supply, the absence of direct substitute and sustained high demand. All these factors combined explain why the more affordable rental market segment remains particularly tight and is less likely to show the same improvements in affordability as the higher-end rental market segment. Increased and sustained supply in this market segment would help moderate rent growth, and allow incomes to catch up, hence improving affordability over time.

Our new Housing Affordability Composite Index, combined with market intelligence from CMHC’s local market analysts, helps identify imbalances between supply and demand. It also identifies where affordability pressures are still felt most acutely and helps inform decision-making on what types of units to build and where at a given point in time.

As Canada navigates the current housing crisis, affordability challenges are expected to ease over time, though they will likely remain a concern. CMHC is committed to regularly updating and releasing the indices, including seeking higher-frequency data on the rental market, while continuing to deepen our research and analysis of housing market affordability.

Contributors to this article : Marguerite Simo, Cherise Millar, AKM Nurul Hossain, Vincent Bernard, Marie-Claude Guillotte and Lise Pichette

Beyond Toronto and Vancouver : Affordability Challenges Spread Across Canadian Cities by Mathieu Laberge | Chief Economist & Senior VP | CMHC