The Decibel - The benchmark of housing affordability has changed in Canada

Episode Date: June 30, 2025

The Canada Mortgage and Housing Corporation has said it is no longer possible to return Canada to 2004 levels of housing affordability. We cannot build enough new housing supply to hit that target. So it’s changing its benchmark.Rachelle Younglai covers housing and real estate for The Globe. She explains the CMHC’s new approach to affordability, what they say needs to happen to improve the cost of housing and what it means for home prices and rents.Questions? Comments? Ideas? Email us at [e-mail]

Affordability has long been a problem in Canada's housing market. And now, the Canada Mortgage and Housing Corporation has changed how it's measuring housing affordability. Prices got way worse over the pandemic, when the cost of a typical home jumped 30% higher than in 2019. That's according to data from the Canadian Real Estate Association. With the typical Canadian home now costing $700,000, it's fair to ask, what even qualifies as affordable anymore? The CMHC's new benchmark is meant to be more realistic, but it also means the old one, which was cheaper,

is no longer doable. Rachel Youngly covers housing and real estate for The Globe. She explains the CMHC's new approach to affordability, what they say needs to happen to improve the cost of housing, and what it means for home prices and rents. I'm Maynika Ramon-Wilms, and this is The Decibel from The Globe and Mail. Rachel, thanks so much for being here. Thanks for having me.

So the CMHC has made a change to its benchmark of what is considered affordable housing. So help us understand this. What is the new benchmark? So they have come out and said they want to use 2019 as the year that we base our definition of affordable housing on instead of the previous year that they used was 2004. They had chosen 2004 because they said that was a time in our recent history when the economy was doing well and people could afford their housing.

So they're looking at home prices and they're looking at rental rates. And by being able to afford housing, what they meant was that it met the standard that we have in North America that you don't spend more than 30% of your total income on either rent or paying your mortgage and other home maintenance costs. Okay, so this is an important definition, right? 30% of your total income goes to your housing costs, essentially. That is the affordability kind of line. Yes. Okay, so they've moved that from 2004 to 2019. So what is the effect of that then? Like in terms of how much people make and what is affordable? The effect is that it's

going to be higher of course than what it was. And that the reason they wanted to move it up to 2019 from 2004 is because they said that it was not realistic to ever go back to 2004 because of home prices and rental rates have increased so much since 2019 that there's just no way that we could go back to 2004. And of course, wages haven't risen that quickly either, right? So they've changed the benchmark because basically, 2004 is no longer attainable. They're saying we're going to shift this to make it more attainable, but also more expensive. Yes, exactly. Yes.

We're talking kind of hypothetically here, Rachel. Can we look at an example maybe to illustrate the difference of this change? For sure. So I guess there are many ways to look at it, but we could start with what home prices were around 2004, 2005. So a typical home price in that year was $240,000. The average rent in those years was around $700 a month.

Yeah. Laughable, I know. What a time. Exactly. And then when we look at 2019, which is their new benchmark, a typical home price was $530,000. And the average rent in that year was just over $1,000 a month. And then when we fast forward to today, the typical home price is $700,000 and the average rent is $1,400. Okay, yeah, so we can really look at that seeing those numbers to if our new benchmark is 2019 instead of 2004, those are very different. Yeah, they're very different. Yes.

I'm curious, why did the CMHC pick 2019 as the new goal, specifically that year? They picked that year because it was a year where they see a stable for most parts of the country, with the exception of Toronto and Vancouver, which are our country's two most expensive markets. But in all the other parts of or most of the other parts of our country, 2019 was a year where people were residents were not paying that much more than 30% of their gross income on rent or on housing. And it was relatively affordable to buy a house outside of the Toronto region and outside of the Vancouver region. So that's why they picked 2019.

And I of course, just have to point out that's the year before the pandemic too, right? So that must play a factor. Yeah, the pandemic plays a huge factor in this because during the pandemic, the interest rates were very low, meaning borrowing costs were very low. So a lot of people were taking advantage of those low interest rates to buy housing. And home prices increased significantly in all those regions outside of Toronto and Vancouver, like regions that were considered affordable, places like Guelph, Kingston, London, Halifax, Chilliwack, all these places were considered affordable before the pandemic. And so those,

the low borrowing costs triggered a lot of home buying and triggered a lot of competition for housing. So there was that. And I imagine outside of the major cities, like when you're talking about these smaller areas, that's because people were working remotely and could actually do that. Yes, exactly. I was going to mention that the reason why home prices went up so much in those areas was because of these work from home mandates that were being rolled out across the country.

And so many people left the city, left Toronto, left Vancouver and went to the smaller cities, went out into the country and semi-rural areas, bought places there and were able to work remotely. So it was those two factors that really drove up home prices. And that's why the CMHC says there's no way we can go back to 2004 because there was such a massive change, massive spike in home prices from 2019 to now.

Okay, so we've kind of understood now the increase that's made the CMHC decide on this change. Let's actually look at how we achieve this then, Rachel. What does the CMHC say needs to happen in order to get us back to 2019 affordability? Rachel Besson So the recommendation is we need to double the amount of home building that we do every single year. So right now we are averaging about 250,000 new housing starts every single year. And they're saying we need to double that to almost 500,000 new housing starts every single year for the next 10 years.

And when we say housing starts, this is like houses, condos, apartments, like kind of everything? It's everything, yeah. Is this a realistic recommendation? Can we actually double the number of units that we're currently building? Is that possible? No. double the number of units that we're currently building? Is that possible? No, it's...

Under our current conditions, it's not possible because we don't have the workers needed to do that. We don't have the capital needed. We don't have the resources in terms of money, in terms of people to do that. Right now, the reason why home building takes so long in Canada is that there are multiple types of approvals that you need to get from municipalities, and that at all takes a very long time.

So it's not possible, even if all levels of government said, OK, yes, we agree that we need to double our housing starts tomorrow, we will not be able to do that because we don't have the people to do it. So this is an interesting situation we're in then because the CMHC is saying we need to double the number of units we're building every year. But it sounds like just from the capacity that we have right now, we actually are not really anywhere close to doing that. No, we're nowhere close to doing that.

Have we at least seen an increase in the last few years? Like, are we building more in the last few years? No, we're not. to doing that. Have we at least seen an increase in the last few years? Are we building more in the last few years? No, we're not building more. We're always around 250,000 new housing starts. And in fact, we've slowed in some parts of the home building process in terms of new condos. Yeah, we haven't seen an increase. So what needs to change?

I mean, obviously, that's a big question because you've listed a whole bunch of things that are not kind of working the way they could. But what needs to change in order to get us in a better position? Well first of all, it'd have to be capital. You need the money to invest in building new homes. You need that. You need the people, which we have a lot of very skilled construction workers, but you would need more if you wanted to double housing starts. You'd also need

the land available to do that on. You would also need the municipalities to say yes a lot faster. You would also need the infrastructure to support all this new housing. So even if cities said yes to new developments, you also need infrastructure to support it, like new lights, new sewage, new roads, but maybe a new garbage system. All of those things take time. It just doesn't happen overnight. We'll be back in a minute.

We'll be back in a minute. Okay so Rachel, it sounds like even though we've got these new benchmarks for housing affordability, these are still a long way off for us to actually hit these targets. So let's say that, you know, we're not able to achieve this. We don't double the housing that we're currently building like the CMHC is recommending. What would that do for prices in different parts of Canada? So the CMHC predicts that if everything stays the same and we don't increase housing starts, then home prices would continue to increase quite significantly. For example, in Toronto they see home prices going from about $1.2 million today to almost

$2 million by 2035. And that's an increase of about 60%. That's kind of a scary jump, okay. Yeah, it's a big jump. In the rest of Ontario, so take Toronto out of there, one of the most expensive markets, they see home prices increasing 50% over 10 years without the new supply. Still high, wow.

Still high, right. Another place like Nova Scotia, they would expect home prices to increase by 13% over 10 years, which is not as steep as Toronto and the rest of Ontario. Yeah, but still significant, I imagine, for Nova Scotia. For Nova Scotia, yeah. OK, so that's if we do not double our building here over the next little while. How does that compare if Canada does actually build those homes, though?

So if we do manage to double our housing starts, CMHC says the home price increases won't be as great. So in Toronto, they see home prices only increasing CMHC says the home price increases won't be as great. So in Toronto, they see home prices only increasing 20% over 10 years, for example. Instead of the 62%. Instead of the 62%. For the rest of Ontario, actually they see home prices falling 2%.

So instead of increasing 50%, home prices would fall 2% over that 10-year period. And in Nova Scotia, instead of increasing 13%, it would decline by 20%. So some parts of the country would see a decline in home prices, some would see home prices stay the same, and in Toronto, it would increase at a lower pace. Yeah, so that's an interesting point. So in some places, the prices would drop, but in some places like Toronto, it's more about slowing the rate of growth then.

Yes, yeah. Okay, that gives us a clear understanding, I think, of where things could go, depending on what we do. Rachel, let's look at the state of things right now. Like, what is the state of the housing market in Canada if we look at it these days? It's very slow. It's been slow since the latter half of 2022,

after the Bank of Canada started raising interest rates. The entire resale market started slowing down, and people thought that home sales would pick up this year because the Bank of Canada started cutting interest rates, but that hasn't happened because of all the economic uncertainty with the tariffs and the job market deteriorating. Yeah, even though the Bank of Canada cut interest rates from 5% to 2.75%, that didn't really pick up the market then. No, not really. Buyers are concerned about the health of their economy. So a lot of people don't want to make a very big purchase.

And the other thing is that because home prices have been falling, a lot of buyers believe that if they just wait a bit more, home prices will drop even more. So people are kind of waiting to see, maybe it's a better time a little bit later to get into the market then. Yeah, yeah, yeah, exactly.

And I would say the other thing that's holding buyers back is that even though the Bank of Canada has cut interest rates, the cost of a mortgage is still high. And because home prices are that much higher than they were compared to 2019, the cost of a mortgage is just that much more unaffordable. So it's many reasons why the market has been so slow, but it's just it's basically unaffordability. Is there a difference in demand when it comes to condos compared to detached homes?

Yeah, that's a good point. There is a lot more buyer demand for low rise houses, so detached houses and semi-detached and town homes, but there was very little demand for condos and a lot of realtors would say that there's an oversupply of condos in the market right now, especially in Toronto and Vancouver, and that's because there has been so much investment in condo building over the past decade and so now we have just this scores of condo buildings and condo units being completed today. Okay so I guess like new and existing condos it sounds like there's a lot of supply and they're just

not moving. Yeah so they really yeah the condos are really not moving at all. And I think buyers, if they were interested in the condo, the same situation is happening there where they are just waiting for prices to drop even more for them to be interested. I mean, I can imagine that might maybe slow the growth of building new condos if the ones that are out there already are not selling. Like, why would we build more? Yes, exactly. That is what's happening, because in order for a condo to get off the ground, you need to pre-sell at least 70% of the condo building in order to get financing to even proceed.

And so if a developer can't launch a new project, and even if they launch, they can't get to that 70% because there's no interest. No one's interested in buying these pre-construction condos. Then they won't get financing. And so that will slow home building. I mean, it already is slowing home building. That won't help us get to that doubling number

that we're supposed to get to, right? No, no, exactly. It will not. Definitely it will not. So that's the state of the condo market. And then you mentioned with houses, there's still demand for that. So are we still seeing house prices remain relatively high? Or what's the situation? In some parts of the country, home prices are, they're not really moving up quickly,

but they're not really dropping. I'd say they've stabilized in some parts. If you look at Canada as a whole, the home price, the typical home price has not moved that much over the past few months. Home prices are still dropping in places that were considered more affordable. So places like St. Catharines. Ontario. and Catherine's home prices. Yes, on Ontario, home prices are dropping there. But it's not this dramatic drop in home prices, not for the detached, not for the low-rise segment. Okay, just lastly here, Rachel, I guess I wanna talk to you about the way that we view housing in general,

because we often talk about it as an asset in Canada, right? But if we increase our housing supply, I wonder, could that change that perception of how we see housing? So that is the CMHC's goal. If we increase the supply of housing and there's just more housing available for people to buy and rent, that means the value of your home,

the value of your property won't increase as quickly as it has in the past. And so they believe or they think that if home prices don't increase as much, then you would take some of your savings and maybe invest it in the stock market or something else, something that's not housing. And that would mean that you would view housing as, as you were saying, as less of an asset and more of just the place you live. Yeah. Instead of this kind of like long-term wealth generator. So because for so long, housing in Canada has been, it has been an asset that generates wealth and that has increased in value over a very short period of time.

So even if you bought a house in 2019, it's gone up 30%. If you bought a house in 2010, the home price has doubled. So you've just made a lot of money. But if home prices don't increase at that pace anymore, if they only increase 10% over 10 years, is that really a place to make money? Not really. It could be a game changer in the country. It could be a completely different way of viewing housing. It could be. Rachel, really appreciate you taking the time. Thanks for being here. Thanks for having me. That was Rachel Younglie, who covers housing issues and real estate for The Globe. That's it for today. I'm Maynica Ramon-Wilms.

Our producers are Madeleine White, Michal Stein, and Allie Graham. David Crosby edits the show. Adrian Chung is our senior producer, and Matt Frainer is our managing editor. Thanks so much for listening, and I'll talk to you soon.