Is affordability reaching dangerous levels in Toronto?

According to the new RBC housing affordability measure, our biggest housing markets aren’t just expensive — they’re wildly expensive. Royal Bank economists say Vancouver is approaching “dangerously unaffordable” while Toronto is “moving closer to risky levels.”  

The quarterly report, which has been compiled since 1985, now looks at 14 urban markets; it starts with the cost of owning a detached bungalow (which they say is a “reasonable property benchmark” for the housing market in Canada) at market value and calculates it as a percentage of average income.

The latest measure estimates it would take an average Vancouver family with a 25-year mortgage 109% of their disposable income to own a single-detached home including the mortgage, utilities and taxes. In Toronto, that number is now 71.4%. Condos are more affordable, although prices are on the rise.

In its comprehensive global housing affordability survey, Demographia uses a slightly different common matrix to come up with its price-to-income multiples. “Median multiples,” which calculate the ratio between median house price and median annual housing income, have been called by the World Bank “possibly the most important summary measure of housing market performance, indicating not only the degree to which housing is affordable by the population, but also the presence of market distortions.”

Any multiple less than 3.0 offers good affordability. A measure of 3.1 to 4.0 is considered “moderately unaffordable,” 4.1 to 5.0 “seriously unaffordable,” and any measure greater than 5.1 “severely unaffordable.”

Demographia’s survey looks at 367 international metropolitan markets in nine countries including Canada; 87 of those markets have populations greater than one million. While the median multiple has historically been similar in Australia, Canada, Ireland, New Zealand, the UK and the US, with multiples from 2.0 to 3.0, the picture in recent decades has changed drastically.

Of all of those markets, in the 2015 survey, Vancouver was rated third: Hong Kong, with the highest multiple, rated a 19.0; Sydney, Australia 12.2, and Vancouver 10.8. For some additional perspective, that far outstrips some of the cities we’ve come to think of as unaffordable, like London with 8.5 and Los Angeles with 8.1. In Toronto, the median measure was 6.7.

Of all the multiples of 5.1 or higher, every one has major metropolitan areas that have strong urban containment boundaries and restrictive land use policies. Ontario’s legislation, including the “Places to Grow” urban containment policy, has helped result in a 70% increase since 2001.

As long as demand outstrips supply, prices aren’t likely to come down substantially. I realize that there are problems inherent in opening up development, but as Harvard University economist Edward Glaeser said in the report, “Any time we say no to new building, whether in the city centre or on the edge, we are saying no to families that want to experience the magic of urban life. We also ensure that every other family that lives in the city is paying more for their own homes.”

It’s not that I think we should ignore the environment or pave over every park. I’m aware that some of the country’s best agricultural land is directly beneath some of our most urbanized areas. But we need to get real. We can’t allow our urban markets to be elite enclaves for the super-rich.

Plain and simple, we need policies that favour development. We need to lower development charges. We need to curb offshore investment. We need municipalities that work together to draw employment-creating head offices of national and international corporations away from the city centre.

Those of us who do crave downtown living need to be willing to compromise, even if it means giving up our cars. We need to stop thinking of ourselves as singular units and start behaving like a community.