A house for sale on the real estate market in Toronto.Mark Blinch
Canadian home affordability was already worsening, and that's set to deteriorate further as mortgage rates creep higher.
A gap in the supply of affordable housing left one in five Canadians struggling to afford the homes they live in, Conference Board of Canada said Tuesday in a study based on 2007 Statistics Canada figures.
More recent data suggests affordability is worsening. Housing affordability deteriorated in the fourth quarter, largely driven by rising home prices, Royal Bank of Canada said earlier this month. It predicted homeownership costs will keep rising as strong demand and a limited supply of homes put pressure on prices, while interest rates rise.
Rates are already rising. RBC, Toronto-Dominion Bank and Laurentian Bank all said yesterday they're hiking fixed-rate mortgage rates amid mounting expectations the Bank of Canada will boost its key lending rate in June or July.
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The Conference Board's report, entitled "Building from the Ground Up," concludes many Canadians can only keep a roof over their heads by cutting costs in ways that could harm their health - such as buying less nutritious food. That's having an adverse effect on national productivity, it added.
As of 2007, about 75 per cent of Canadians lived in homes they can afford, the Conference Board said, adding a further 5 per cent had their housing costs subsidized by the government.
That leaves 20 per cent of Canadians struggling to keep up with the cost of their homes, the report said. The Conference Board defined housing costs as unaffordable if they exceed 30 per cent of pretax income. It released the figures based on customized data from Statscan's survey of household spending.
About 1.2 per cent of households spent more than 100 per cent of their income on shelter, it said.
"The quality and cost of housing are major factors in the health of Canadians. However, about one-fifth of Canadian households do not have the resources to afford both good-quality homes and other health-enhancing expenditures, such as nutritious food or access to recreational activities," Conference Board director of education and health Diana MacKay said in the report.
People move in and out of a budget squeeze all the time, partly depending on their labour market situation. Of the 7 million people who grappled with affordability problems between 2002 and 2004, almost half did so for only one year.
"We have many household experiencing periods of inaffordability at any given point in time - however the majority of households needing help only need help for a short period of time," Ms. MacKay said in an e-mail. "Therefore, we need to ensure that key partners (government, private sector, and civil society) provide affordable housing options that support transitions to independence."
Developers have tended to focus on building homes that are affordable to people in a higher income bracket, leaving a large segment of the population underserved, the report found.
The private sector's history of efficient and innovative practices would make it a valuable partner in the effort to close the housing gap, the Conference Board said.
The report calls upon governments to partner with real estate developers and civil organizations to increase the amount of affordable housing in the country, saying such changes would have positive impacts on both Canadians' health and the national productivity level.
With files from Canadian Press
Tavia Grant