A worked example of housing costs

This is Joseph.

I want to give an example of how poorly housing policy works in Canada right now. This report lists some affordability measures for Canadian cities. For example, Vancouver requires 459 months to save a down payment, mortgage payments are 127% of income, and the income to own a house is $348K. Winnipeg is 31 months to save the down payment, mortgage payments of 35% of income, and an income of $100K to own a house (representative house if $416K). Toronto (income of $274K) and Montreal (income of $143K) are clearly less affordable major cities. 

Now these numbers are a bit higher then what we see on other sites, probably because of the inclusion of condos. Now go back to 1982 and the average house (with condos much less in fashion) was $54K (which is $147K in 2022 dollars. 

Now, just to be clear, that is a 2.8-fold increase in real cost of housing. 

Winnipeg is a very cold city. The coldest major city in Canada. Median household income in Winnipeg is fairly average ($71K) versus Toronto ($78K) or Calgary ($100K). It has some good features and a very nice university but this is not a great foundation to drive house prices. 

In 2015 there were at least 1400 people experiencing homelessness at the start of a winter in a city where cold clearly kills. By 2022 things had really not improved. 

But it is also the case that rising house prices are taking away opportunity in the city. Here is also where the different levels of government are misaligned. There is a brisk immigration program in Canada. Canada now how the highest percentage of immigrants as a percentage of the population, ever, and the number of international students has increased sixfold since 2000. I think that the immigrants are a good thing. But they do need places to live and huge explosions in number of people in Canada (25.1 M to 38.5M is a 53% increase in population over the same 40 year period). 

So at least part of the problem is constrained supply:

The average number of housing units per 1,000 residents is 471 across G7 countries. In Canada it is 424 housing units per 1,000 residents. Putting that in perspective, Perrault notes that it would take an additional 1.8 million homes in Canada to achieve the G7 average. Canada has averaged a mere 188 thousand home completions in the last 10 years.

There are other possible issues (asset inflation) but the example of Winnipeg is showing a sea change in affordability over the past 40 years.  Making it worse, this asset appreciation is a big part of the wealth of middle class families in Canada and solving this problem would create a huge set of new problems like low savings and underwater mortgages. 

It is a messy problem all around.