Canada’s Housing Affordability Crisis: Why a Return to Pre-COVID Levels is Key

Canada’s housing affordability crisis has reached a critical juncture, with homebuyers and renters alike feeling the strain. In response, the Canada Mortgage and Housing Corporation (CMHC) is urging policymakers to use pre-COVID affordability levels as a practical benchmark for addressing this escalating issue.

The Steep Decline in Affordability

According to CMHC Chief Economist Mathieu Laberge, affordability has plummeted dramatically in recent years, with the COVID-19 pandemic acting as a major accelerant. Between 2019 and 2023, housing and rental costs surged, far outpacing income growth.

“Although many affordability indicators deteriorated between 2004 and 2023, the deterioration was most substantial during the COVID period,” Laberge noted. Major urban centers like Toronto and Vancouver have borne the brunt of this decline. In Toronto, the minimum down payment for a median-priced home as a percentage of median income skyrocketed from 239% in 2019 to a staggering 417% in 2023. Similarly, Vancouver saw this figure rise from 233% to 441%.

“Toronto and Vancouver stand out in terms of homebuying affordability challenges, which seem to be structural,” said Laberge. The average home price in November 2024 illustrates the affordability gap: $1,106,050 in the Greater Toronto Area and $1,172,100 in Metro Vancouver.

Renters Under Pressure

The affordability crisis extends beyond homeownership. Renters are also grappling with rising costs as inflation erodes their purchasing power. Many Canadians who might otherwise transition to homeownership are remaining in the rental market, exacerbating demand and driving up prices.

“This is still a cause for concern in the rental market,” said Laberge. “More expensive homebuying means more Canadians are remaining renters for longer, putting additional pressure on the rental market.”

Pathways to Affordability

The federal government has begun taking steps to alleviate the housing crisis. One significant move came in October with a reduction in immigration targets, aimed at easing pressure on the housing supply. The government projects this measure could reduce the housing supply gap by about 670,000 units by 2027. However, skepticism remains. The Office of the Parliamentary Budget Officer (PBO) has warned that despite these measures, the housing gap could still reach 658,000 units by 2030.

Laberge advocates for a clear and achievable goal: restoring pre-pandemic housing affordability. “The first step in resolving a crisis is being transparent about what is possible and when,” he said. “Focusing on fixing the more recent and less entrenched situation and directing efforts to getting back to pre-COVID housing affordability across the country may not fix every challenge, but it would bring relief to many Canadian families.”

A Tangible Starting Point

Using pre-pandemic affordability levels as a benchmark provides a tangible starting point for policymakers. While it may not solve all structural challenges, such a focus could offer meaningful relief for Canadian families struggling to find stable and affordable housing.

The path forward will require collaboration across all levels of government and private sector stakeholders to address the affordability crisis comprehensively. Whether through increased housing supply, sustainable immigration policies, or targeted affordability programs, a concerted effort is needed to restore balance to Canada’s housing market.

For many Canadians, a return to pre-COVID affordability levels represents not just a benchmark but a glimmer of hope in an increasingly unaffordable landscape.