Young couples fall short of qualifying for homes in most major cities

Median-income couples under the age of 35 cannot qualify for a mortgage on a home at the benchmark price in almost every major Canadian city, according to an analysis. Couples in their late 30s and early 40s can mostly qualify, except in Toronto and Vancouver, but a Bank of Canada interest rate hike this week has made borrowing more expensive. The central bank raised its key rate by a quarter-point on Wednesday to 2.5 per cent. Matt Stewart, a partner in economic advisory at Deloitte, said the increase is significant for middle-income households.

"It's not a massive impact, but it's not small either," Stewart said in an interview. He estimates the hike adds about $80 a month for an average buyer signing a mortgage today. "It certainly is having an impact on middle income households." Stewart said Canadian households are very leveraged, with debt equalling about 176 per cent of disposable income in the second quarter, according to Statistics Canada. He expects several more interest rate increases before the end of 2027 as the bank tries to head off rising inflation.

David-Alexandre Brassard, chief economist at Chartered Professional Accountants Canada, said variable mortgage rates are now catching up to fixed rates, which had already risen this fall. This leaves new home buyers with less of a margin to borrow money, he said. To estimate the income needed to qualify, the analysis applied standard lender rules. Buyers must prove they could still make payments if rates rose two percentage points, or at 5.25 per cent, whichever is higher, and housing costs cannot exceed 39 per cent of gross income.

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A median-income Toronto couple in their late 20s or early 30s earns about $82,000 a year. To get a mortgage on a home at the benchmark price, they would need about $203,000. For a condo at the benchmark price of $527,200, they fall short by about $48,000. A median-income couple in their late 30s and early 40s in Toronto earns about $123,000. That income is about $7,000 short of qualifying for the benchmark condo, about $28,000 short for a townhouse priced at $668,800, and about $123,000 short for a detached house priced at $1.1 million. The minimum down payment ranges from about $28,000 for the condo to nearly $87,000 for the detached house, before closing costs.

The federal government has introduced measures to help buyers, including GST rebates of up to $50,000 for first-time buyers of new homes priced up to $1 million. It also allows first-time buyers and buyers of new builds to take on 30-year mortgages, which would lower the income needed for a benchmark home by about $11,500. Ontario offers HST relief, removing the provincial portion of the tax on new homes costing up to $1 million for eligible buyers who sign by March 31, 2027. The province also uses its share of $1.7 billion in federal housing money to cover the five per cent federal portion, offering potential savings of up to $130,000 for new homes up to $1.5 million, though these rebates do not apply to resale homes.

To increase supply, the government launched Build Canada Homes to build more non-market housing and struck an $8.8 billion deal with Ontario to cut development charges. However, not everyone believes the rebates help. Brassard said they risk ending up in builders' pockets, and Ottawa should favour measures that cut the cost of building, such as zoning and development fees, and public money for affordable housing. "Construction costs have gone up a lot more than inflation," Brassard said. "If you talk to homeowners about getting renovation at your house, it's almost laughably expensive." He added the government should let the market downturn "run its course" to improve affordability.

Conservative housing critic Scott Aitchison echoed a similar sentiment, saying the government should cut the cost of building and not subsidize buyers. "All governments at all levels have seen new home construction as cash grab," he said in an interview, citing Ontario's tax rebate as temporary. Aitchison said the effort to "buy off municipalities to reduce development charges" is not sustainable and called for more affordable and deeply affordable homes. Opposition critics also said Ottawa's supply plan isn't delivering. Conservative MP Jacob Mantle questioned whether the government's goal of 500,000 new homes a year is realistic. "Right now the minister has admitted that they only have commitments for 19,000 homes through Build Canada Homes, which is their solution to the supply problem," Mantle said on Tuesday.

NDP finance critic Don Davies said Build Canada Homes was a goal but in practice, "it's failing." "Talk is cheap but actions speak louder," Davies said. "You got to show me, point to me where in any major metropolitan area in Canada you see significant federal housing being built. I don't see it, I certainly don't see it in Lower Mainland." In a statement, a spokesperson for the housing minister's office pointed to the $1.7 billion for provinces and territories aimed at lowering development charges through Bill C-26 to speed up construction. Your Space Hamilton reported in October that a Bank of Canada rate hike was deepening uncertainty for the Toronto housing market.

With files from iPolitics