Unaffordable housing costs persist in several urban centres across Canada despite recent improvements. Canada Mortgage and Housing Corporation’s (CMHC) latest Housing Affordability Composite Index (HACI) reports that the issue now extends beyond Toronto and Vancouver.
The newly released index considers a few indicators, including potential interactions between the rental and homeownership markets. Affordability remains at crisis levels due to a combination of high costs, constrained supply and demand pressures, and incomes that have not kept pace with rent or mortgage payments. The analysis also considers discretionary income that can be used to make space for a greater housing budget.
“Affordability started recovering slightly since 2023, when it reached historical lows,” said Mathieu Laberge, chief economist and senior vice-president housing insights. “For homeownership, we observed improved affordability, while for renters we saw stabilization over the last two years. “Even with these improvements, we cannot overlook how much housing affordability has eroded in recent years, especially in Ottawa, Montréal and Halifax, clearly demonstrating that Canada’s housing affordability crisis is no longer limited to Toronto and Vancouver.”
Regional shifts
The HACI analyzes housing affordability trends for seven major centres: Vancouver, Edmonton, Calgary, Toronto, Ottawa, Montréal, and Halifax, and is updated regularly.
At the national level, homeownership affordability fell to its lowest point since the 1990s during the second quarter of 2022. However, conditions have slightly improved since then.
A focus on recent affordability trends overlooks a slow erosion that began in the early 2000s. Homeownership affordability peaked in the second quarter of 2001 and then declined in three distinct waves: 2001 to 2007, 2015 to 2020, and 2020 to 2023.
During the second half of the 1990s, affordability in all seven centres remained above their collective long-term average. 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 two periods of erosion in homeownership affordability were driven solely by these two markets.
From 2020 to 2023, conditions deteriorated in traditionally more affordable cities like Ottawa, Montréal and Halifax due to remote work during the COVID-19 pandemic. Since 2023, affordability has slightly improved across key markets and stabilized in Montréal, Calgary and Edmonton.
Inflation drives the recent decline in rental affordability
The erosion of rental market affordability is more recent. Different factors drive this trend. Rising ownership demand outside Toronto and Vancouver reduced affordability, while inflation and high immigration pushed rental costs up across Canada from 2022 to 2023.
Renters have less discretionary income than homeowners, making it harder to cover rising costs or borrow short-term. As a result, their housing budgets are more easily compressed and reduce their ability to pay for a rental unit. CMHC states this explains why rental affordability fell nationwide in 2022-2023 and has since stabilized at a lower level.
Market intelligence clarifies trends
Aggregate indices often mask trends in specific market segments. The analysis revealed that elevated condominium inventory in Toronto and Vancouver is boosting rental supply, raising vacancy rates, and slowing rent growth for higher-end repurpose-built rentals. Sustained relaxed market conditions with ample options may increase affordability for rental condos and higher-end purpose-built units compared with historical levels.
At the other end of the rental market spectrum, where more affordable units are found, market intelligence points towards slower increases in supply, the absence of direct substitute and sustained high demand.
All these factors help explain why the more affordable rental market remains especially tight and is less likely to see the same gains in affordability as the higher-end segment. Increasing and sustaining supply in this market would moderate rent growth and allow incomes to catch up.
CMHC’s Housing Affordability Composite provides a more holistic view of housing affordability in Canada. Specific regional data can be accessed here.
