Housing affordability crisis persists with prices nine times income, lending executive says

A leading Canadian lending executive says the housing market remains in an affordability crisis, with average home prices still about nine times household income and needing to fall much further.

Fausto Gaudio, president and CEO of community credit union IC Savings, told Canadian Mortgage Professional that unaffordability is the core issue overshadowing other market problems like supply shortages and high interest rates.

"The major factor in what’s happening is the unaffordability of housing," he said. "That’s really the underlying issue that needs to be corrected."

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He said the continued inability of many working Canadians to qualify for a mortgage marked a "real structural problem" for the real estate market.

Gaudio noted the average Canadian home price historically sat at roughly 3.5 to 4 times average household income, a level seen as sustainable.

That ratio ballooned to 12 times income at the peak of the COVID-19 market and has only slipped to approximately nine times now.

"In order to get back to a traditionally healthy market, we’ve got to get back to that 3.5 times, from nine," he said. "That’s a lot. That’s a big distance to cover."

The challenges have developed over decades as wages rose modestly compared to a massive surge in average home prices, making down payments increasingly difficult, especially for first-time buyers.

Gaudio pointed to speculative condo investment in the Greater Toronto Area before 2022 as an example of the market becoming distorted, with units built for investors rather than owner-occupiers.

"Because of all the investors that came into the market, it bumped up the demand curve to such an extent that real estate just went up and it became mostly one investor trading a housing unit to another investor, almost like a commodity," he said.

He said the mortgage industry didn't push back enough on that trend.

"Mortgage brokers, mortgage lenders, the whole industry was closing an eye to this," he said. "Very few people were speaking out and saying, ‘Where are we going? This is going to create an unsustainable market.’ And that’s what happened."

GTA condo values have since plummeted by about 20% amid a market freeze.

On potential solutions, Gaudio was skeptical that lower interest rates alone would solve the affordability problem.

"You drop interest rates, the price of housing goes up," he said. "So we need to think a little more globally."

Housing Minister Gregor Robertson stirred debate last year by suggesting home prices don't necessarily have to fall to improve affordability.

Prime Minister Mark Carney has introduced measures to ramp up construction, including the Build Canada Homes policy to turbocharge homebuilding.

That plan has seen a mixed response, with only around 2,000 affordable units of the 19,000 planned currently under construction.

Gaudio said the government is at least moving in the right direction.

"The governments are doing a good job in bringing more product to the market by subsidizing not-for-profit housing, affordable housing," he said. "That’s a good thing. That’ll help to normalize prices."

Your Space Hamilton reported in October that Canadian home prices rose for the first time in over a year but remain down nearly 20% from the record high.

With files from Mortgage Professional America