Canada’s housing crunch is like a game of whack-a-mole. Solve one problem, and another pops up somewhere else.
Runaway price growth for single-family homes is a thing of the past in Toronto and Vancouver today, thanks to rising interest rates and tougher mortgage rules. But with prices still high, buyers have turned to other options. Or really the one other option that exists: condos.
“Trouble is, this stronger demand for condos resulted in sharper price gains and affordability erosion,” Royal Bank of Canada economists Craig Wright and Robert Hogue wrote in their latest affordability report.
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Over the past year, RBC’s affordability measure for condos worsened three times faster than it did for single-family homes. The gap between renting and owning a condo is the largest it’s ever been.
To go from renting a two-bedroom apartment to owning an average condo in Toronto, you need to spend an additional $1,138 per month. In Vancouver, that premium is $1,553, while Montrealers need to spend an additional $904 per month.
Of 14 cities for which RBC crunched the numbers, in only two — Saskatoon and Winnipeg — is it cheaper to own a condo than to rent an apartment.
That gap grew very rapidly between 2015 and 2018, increasing by 140 per cent in Toronto, 119 per cent in Vancouver and 42 per cent in Montreal.
The gap in costs between renting and owning has soared in many Canadians cities, but has decreased in Ottawa, Regina, Saskatoon, Winnipeg and St. John’s.
“And it’s not because rent is cheap or became less expensive over that interval,” the RBC economists noted. “Rent increased by an average of 6.4 per cent in Vancouver, 4.4 per cent in Toronto and 7.6 per cent in Victoria in the past three years.”
All of which means would-be homebuyers will likely be renters for much longer from here on in.
“Expect rental demand to grow rapidly in the years ahead,” Wright and Hogue wrote.
Rental housing is not keeping up with demand. A recent study by GWL Realty Advisors estimated Toronto needs to be building 25,000 rental housing units per year to keep up with demand, but has been adding only around 14,000 rental units (condo rentals and purpose-built apartments) per year.
Vancouver needs about 12,000 rental units per year, but is seeing only about 3,400 completed per year.
It’s not all bad news. Thanks to declining or flat single-family home prices, overall housing affordability improved slightly in the fourth quarter of 2018 in Toronto and Vancouver, the country’s two priciest markets, RBC said.
But affordability “is still at crisis levels in these markets and pressure is intensifying in Montreal,” the report said.