DeepDives is a bi-weekly essay series exploring key issues related to the economy. The goal of the series is to provide Hub readers with original analysis of the economic trends and ideas that are shaping this high-stakes moment for Canadian productivity, prosperity, and economic well-being. The series features the writing of leading academics, area experts, and policy practitioners.
Canada is in the midst of a housing affordability crisis. The essence of the problem is a basic economic reality. When supply does not keep up with demand, prices rise, and on the supply side, Canada is falling short. TD Economics warns the country could be short more than 300,000 homes between 2024 and 2026, even as developers navigate a process that can take at least 22 months to get a project completed.
This problem didn’t start last year, or even in the last decade. The basic problem of housing supply failing to keep pace with population growth has been building for generations. The gap emerged in the late 1970s, widened through the 1980s, spiked in the mid-1990s, flared again after the 2008–09 recession, and peaked in the last few years as permanent and temporary immigration skyrocketed.
What makes today’s crunch so maddening is that it was foreseeable. By the mid-2010s, warnings were already clear, yet policy responses remained timid, and the rules governing what can be built barely budged. As late as 2022, large shares of residential land in major cities were still reserved for single-detached housing: 64 percent in Vancouver, 62 percent in Calgary, and 54 percent in Toronto.
And while Canadians argue about individual culprits, the real story is a stack of costs and constraints that quietly compounded: rising municipal development charges, rezoning timelines that stretch for months or years, fees that add tens of thousands per unit, tax thresholds that lag far behind local prices, and building rules that can make “missing middle” housing uneconomic.
This DeepDive provides an empirical assessment of how unaffordable homeownership has become across Canadian municipalities, along with clear-headed solutions that can deliver real affordability gains for Canadian families.
Bottom line: for families in Vancouver today saving up to 25 percent of their monthly income (which is much higher than the average household savings rate), it takes the average household nearly 18 years, or 217 months, to have a down payment with a mortgage that is less than 60 percent of their take-home pay. In Toronto, it takes approximately 17 years, or 203 months.
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The average house for the average family
Methodology
Canadians work extremely hard to afford a home, and many of them never achieve the dream of homeownership despite all their efforts. This is why it is essential to examine the unaffordability of housing in Canada and the length of time the average earner would have to work and save to afford a home.
The emphasis here is on affording the home, because it is one thing to be able to put a deposit down on a home and legally qualify for a mortgage, but it is another to have a mortgage payment that is also affordable.
The methodology is as follows: if the average earner is saving 25 percent of their after-tax earnings per month, how long would it take at that saving rate to afford to buy the average home in their province or city, with a mortgage payment that is less than 60 percent of their take-home pay? This savings rate of 25 percent is hugely ambitious, around 6.7 times higher than the average disposable income savings for the average family in Canada. The average Canadian household only saves around 3.7 percent of its disposable income per year, according to Fidelity.
The term affordable relates to a monthly mortgage of 60 percent of the average after-tax monthly income, with the current standard fixed mortgage rate (4.69 percent), and the minimum legal downpayment (consisting of 5 percent of amounts up to $500,000 plus 10 percent for amounts between $500,000 and $1.5 million), as well as other factors that make it a more realistic outlook of what the average Canadian would be paying.
For example, the average house in Ontario is $852,036, and the minimum down payment requirement is 5 percent on the first $500k ($25,000) and 10 percent on the remaining $352,036 ($35,203), for a total requirement of $60,203.
The average worker in Ontario earns $ 4,410 after tax per month. If they are saving $1,102 per month (25 percent), they would have to work/save for 54.6 months or roughly four-and-a-half years to have the cash for the required down payment (take $60,203, divide it by the monthly savings of $1,102 and you get the number of months; divide that by 12 and you get the number of years).
However, even though the person legally qualifies, they could not make the payments on the mortgage, as the purchase price of $852,036 minus the deposit of $60,203 leaves a mortgage of $791,833. At a five-year fixed rate of 4.69 percent, the mortgage payment would be $4,466 (much more than they earn).
For that worker to have a large enough down payment for their mortgage payments not to exceed 60 percent of their after-tax income, the mortgage payment would need to be less than $2,646.
That worker would then need a down payment of $382,957. The total number of months required to work for the down payment on an Ontario home is a whopping 347 months or 28.9 years.
The data for the average individual
Some of the worst places for home affordability
As one might expect, big cities are the worst offenders when it comes to unreasonable home affordability. Considering our methodology, which includes an already generous 25 percent savings rate, it would take an individual in Vancouver 538 months, or almost 45 years, to save up for a down payment on a home.
New single family houses billed as estate cottages and townhouses under construction are seen in an aerial view, in Delta, B.C., on Monday, Aug. 12, 2024. Darryl Dyck/The Canadian Press.
In Toronto, the story is the same, as it takes 44 years, or 529 months, to afford a home.
While significantly less than the other two, Halifax and Ottawa still make the list in terms of the worst cities to afford a home in Canada. In Halifax, a person would have to save for 209 months, or 17 years, to afford a home, while in Ottawa it would take 193 months, or 16 years.
These timelines are all significantly burdensome and have the effect of making home ownership seem completely out of reach for people living in those cities.
Some of the best places for home affordability
Although still out of reach for many Canadians, the situation is better in some cities. Starting off with the lowest amount, an individual in Regina would only have to save up for 16 months, or a little over a year, in order to have enough money for a downpayment.
Similarly, in St. John’s (Newfoundland), it would take around 19 months and 1.5 years to do the same.
There is a sharp increase after those two cities in our research when it comes to Winnipeg and Quebec City, but they can still be looked at as more realistically affordable places to live in than Vancouver and Toronto. In Winnipeg, an individual would have to save for 30 months or around 2.5 years to afford their downpayment, while in Quebec City, there would be a wait of about 85.5 months to save for a downpayment, or seven years.
Graphic Credit: Janice Nelson.
For the average household
Some of the worst places for home affordability
When it comes to the average household as a whole, the results are quite similar to the individual numbers above. Some of the worst places for home affordability when saving and purchasing a home as a household rather than just as an individual are still Vancouver and Toronto.
In Vancouver, it takes the average household close to 217 months or 18 years to afford a down payment, and in Toronto, it takes 203 months or 17 years. Things take a dip after those two, with Montreal coming in third as the most unaffordable per household, at 25 months, or a little over two years, to afford a down payment, and Ottawa-Gatineau with 23 months, also close to two years.
Some of the best places for home affordability
The most affordable city on our list is Regina, where a household must save for 10 months, or less than a year, in order to save up enough for a down payment. Regina is followed by St. John’s, which needs only one year of savings, and Winnipeg also needs one year of savings.
Rounding off the list is Quebec City, which, in reality, is not too far off from its predecessors, coming in at 16 months of saving, or just a little over a year. It is notable that the differences between individuals and households are not very large when it comes to the most affordable cities in Canada, but there is indeed a significant drop in time needed for a downpayment when it comes to the least affordable cities. However, the wait times are nonetheless still very difficult for Canadian families.
Graphic Credit: Janice Nelson.
Policy prescriptions: The path forward
Municipal development charge reform
Municipal Development Charges are fees that local governments charge to cover the cost of new infrastructure and services. This charge does not go directly to the homebuyer, but is paid by the developer, who in turn includes that fee in the home’s price. Those buying already-built homes from owners do not have to pay this fee, but evidence shows it also pushes up the price of used homes exponentially. These charges on new homes can reach six figures when buying a house, and several thousand per unit when purchasing a condominium. The alleged idea behind these fees is to help expand infrastructure so that residents who already live there don’t have to pay for it for new neighbours. But in reality, municipalities often spend this money on projects unrelated to housing.
One helpful outcome for potential homeowners would be to eliminate MDCs, especially given Canada’s housing affordability crisis. Homebuyers are already paying exorbitant taxes on the purchase of a home. On top of that, new homeowners will have to pay a property tax that ought to cover these types of costs.
Adding MDCs on top of property taxes effectively prices people out of the housing market. However, this prescription may give municipal governments the cover to increase everyone’s property taxes in order to supposedly cover that deficit.
The more realistic policy prescription is to lower these fees and require municipalities to be fully transparent about how the money is used to fund new housing infrastructure.
Municipalities should prove that these funds are being spent on things like new roads in the subdivision, water/sewer capacity upgrades, or new schools for the new neighbourhood. Everything else should already be covered by property taxes that are paid by everyone, including the new property taxes that will be added to a city’s coffers when a new house is built and sold.
Houses are seen in a neighbourhood on the side of a mountain, in Maple Ridge, B.C., on Thursday, August 17, 2023. Darryl Dyck/The Canadian Press.
Going even further with GST policy
Cutting the GST on new homes for first-time buyers on homes up to $1 million is not enough. The cleanest way to help first-time buyers reach affordability more quickly would be to completely eliminate the GST on their purchase, no matter how much the house costs, and make that a permanent policy.
However, in order for government not to continuously reward wealthy first-time buyers, the policy could be to initially cut the GST for all homeowners in order to restart the market temporarily, such as for 12 months. After that, it should remain in effect for homes up to $2 million permanently, since housing costs have risen dramatically, and those are the more realistic prices average Canadians are paying for average homes in Canada’s hottest markets.
Furthermore, the GST should apply at closing, not purchase, so that the GST discount is built right into the final price at the moment the buyer pays, and not be something they have to wait for a rebate on. The government prefers to just issue a rebate after everything is over, so that if the buyer ends up not qualifying as a first-time buyer or something else goes wrong, then they don’t have to chase them down to get that money back. However, there are other ways to ensure eligibility, for example, submitting an eligibility to the CRA, like getting pre-approved for a mortgage. This will allow a first-time buyer to borrow less money and spend less on these upfront costs, which will affect affordability.
Of course, these reforms would pack more of a punch if the provinces signed on as well. The final piece of this policy is to advocate for relevant premiers (except those with no provincial sales tax, like Alberta, Northwest Territories, Nunavut, and the Yukon) to take on the same tax cuts on the provincial side of the coin.
Zoning reform
Getting approval to build homes varies across Canada, but one thing they have in common is that it takes too long. Approvals for multi-residential buildings range from about eight-10 months in Calgary to around 25 months in Toronto. The longer the approvals take, the less supply is created, and the more expensive housing is for everyone. For a build that could be completed in one year, it may take three years due to developers waiting for federal, provincial, and municipal approvals.
At the municipal level, zoning rules and regulations often keep abandoned commercial offices—now sitting empty due to work-from-home policies—from being converted to residential space. This has been the case in Toronto, where applying to rezone a space takes a minimum of nine months once the paperwork has been submitted. In Ottawa, however, there had been more of a municipal push to make those types of conversions a reality faster, and that is what everyone should be aiming for
Applicants in Toronto, for example, who are hoping to rezone their properties must provide evidence such as an archeological assessment, a services and facility study, an environmental impact study, an energy strategy, a heritage impact statement, a natural heritage impact study, their planning rationale, their public consultation report and a transportation impact study—on top of their own formal plans.
It is no coincidence that one of the highest cost areas according to our data, Ontario, also faces the most significant number of application and permitting fees, development charges, parkland dedication, and communication charges, all compounded by taxes at the regional and federal levels of government. Fees averaged $116,860 per low-rise unit and $79,140 per high-rise unit in the Greater Toronto Area.
A construction worker is seen on top of a low-rise condo development being built in Coquitlam, B.C., on Tuesday, May 16, 2023. Darryl Dyck/The Canadian Press.
Zoning regulations stipulated by various levels of government must also stop prescribing which type of housing to focus on, and allow the housing market to deliver a full range of choices, as well as quick transitions like affordable, rental, mid-market, and ownership options.
Eliminating exclusionary zoning rules is an important way to cut red tape, so there isn’t a government process determining what should be built on a lot. Neither federal, provincial, nor municipal governments should determine what should be built and where. Builders already know what to build because they’ve done the research to be able to actually sell the houses they are building. They are going to do what the market wants in order to sell their developments. “The market” is simply another name for Canadians wanting to buy a home, and they know what they need far more than any central government body could.
In many cases, lots designed for residential use may only allow a specific type of house (single detached) with limited size options (floor space ratios, height restrictions, setbacks). Ontario’s building code requires two means of evacuation for mid-rise (two-to-six-storey) apartments, which renders that type infeasible to build. These are only a few examples of how ridiculous the process is, and why it is hard to incentivize the building of more affordable housing.
Overall, a C.D. Howe Institute study found that these barriers to building added over $1.3 million to the price of a single-family home in Vancouver and $350,000 in Toronto between 2011 and 2021, not to mention all the homes that will never be built because they are refused an arbitrary “market impact study.”
Key takeaways
It is clear that home ownership is unaffordable across the country. For families in Vancouver today who are saving up to 25 percent of their monthly income, it takes the average household nearly 18 years, or 217 months, to afford a down payment. In Toronto, it takes approximately 17 years, or 203 months. This is not an acceptable state of affairs for Canadian families just trying to live a good life with their families in a home they can call their own.
The answer does not lie in more bureaucracies and entities like Build Canada Homes, which claim to deal with the housing problem by becoming developers themselves and not allowing the market to deliver what Canadians need. Adding another level to the already crippling level of bureaucracy also takes a toll on the federal budget since new bureaucracies require new employees, etc. This is the least efficient way to create housing, when the answer is clear and easy to implement: free the housing market. In fact, the Parliamentary Budget Officer forecasts that Build Canada Homes will only result in 26,000 additional homes, far short of what is needed to meaningfully increase supply.
The government keeps giving Canadians reasons not to trust them to manage the housing crisis, especially with new ideas and bureaucracies they create in order to simply say they are “doing something.” Under Prime Minister Justin Trudeau, the government’s ideas included reintroducing a standardized housing design catalogue from the 1940s. Now, Prime Minister Mark Carney is implementing Build Canada Homes, which will continue the failed plan to have the government act as a developer. If we keep turning to government for help with the housing crisis, only to be disappointed, there must come a time when Canadians are simply fed up with the new bureaucracies and demand real solutions.
Those solutions lie in reforms to Municipal Development Charges, GST policy, and zoning. Dismantling these long-standing housing development impediments will go a long way in making housing more affordable for Canadians, something no government has yet achieved through any program or bureaucracy.
Canada faces a severe housing affordability crisis driven by insufficient supply failing to meet demand, a problem exacerbated over decades by restrictive policies and rising costs. The article argues that only the wealthiest Canadians can currently afford homes, with average earners facing decades-long waits for down payments. It critiques government interventions as bureaucratic and ineffective, advocating instead for freeing the housing market. Key solutions proposed include reforming municipal development charges, eliminating GST on new homes for buyers, and implementing significant zoning reform to reduce red tape and encourage diverse housing development.
The article argues for 'freeing the market' to solve Canada's housing crisis. What specific government policies does it suggest dismantling or reforming to achieve this?
Given the article's findings, how long would it realistically take an average Canadian household to save for a down payment in major cities like Vancouver or Toronto?
The article criticizes government bureaucracies for not solving the housing crisis. What alternative approach does it propose as the most effective solution?
Comments (13)
Canada’s affordability problem has been decades in the making. Endless bureaucratic red tape added to every home or commercial build has slowly added an very significant amount to every project with little in the way of improvement. Provincial politicians who want to appease the people that rent and increasingly add layers of protections for tenants with little recourse for landlords. I’m old and when I was younger there were thousands of apartment blocks to chooser from everywhere. Nowadays it’s a much smaller fraction of the overall market. The answers are pretty obvious. Governments should let the market determine demand and keep the logical rules in place but otherwise get out of the way.