Canada's Housing Affordability Crisis: A Problem of Perception and Regulation

Canada's largest cities, Vancouver, Toronto, and Los Angeles, consistently rank among the least affordable cities in North America. A comparison with their counterparts in the United States reveals that while some cities experience similar unaffordability, the issue in Canada is exacerbated by restrictive zoning and municipal red tape. The main driver of housing unaffordability is not solely monetary policy, but a complex interplay of factors that demand a multifaceted solution.

Key Takeaways:

• Since 2005, housing affordability has worsened in nearly every major city in Canada and the U.S., driven by asset inflation, with asset prices rising faster than wages (1).
• The main driver of housing unaffordability is monetary policy, with the money supply expanding about 7.3 per cent annually over the past two decades, fueling price growth across asset classes, including real estate (1).
• Canada's housing affordability began to diverge from that of the U.S. around 2007-08, in part due to the U.S. slashing interest rates and implementing quantitative easing, while Canada followed the same playbook (2).
• Cities such as Toronto and Vancouver have imposed restrictive zoning and municipal red tape that has choked supply, leading to surging prices and collapsing affordability (2).
• The solution to housing unaffordability lies in boosting supply by easing zoning rules and cutting red tape to allow builders to respond quickly to demand (2).
• Without decisive action, housing in Canada's largest cities will remain out of reach for most young Canadians, exacerbating wealth gaps and shutting people out of real estate's wealth-building opportunities (2).
• Population growth alone does not make housing unaffordable; cities like Texas and Florida have seen rapid growth without housing affordability issues (1).
• Federal and provincial leadership must push municipalities to adopt faster, leaner regulatory systems for the private sector to build more and faster (3).

Statistics:

• Housing affordability has worsened in nearly every major city in Canada and the U.S. since 2005 (1).
• Monetary policy has fueled price growth across asset classes, including real estate, with a 7.3 per cent annual expansion in money supply over the past two decades (1).
• Canada's housing affordability divergence from the U.S. began around 2007-08 (2).
• Home prices in Canada continue to rise, making it increasingly difficult for young generations to afford housing, particularly in Ontario and B.C. (2).

Sources:

• (1) Shaw, I. (2024). "Housing unaffordability study". A comparison of the largest cities in Canada and the United States.
• (2) Byline: HANIF BAYAT PhD, CEO and founder of WOWA.ca, a Canadian personal finance platform
• (3) No specific source provided for this statement, please refer to the original text for context.