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Housing affordability may be top of mind for many Canadians, but Canada still ranks high for homeownership internationally, suggests RBC, and any government steps to further improve it should focus on shortages of homes in big cities.
“We take issue with the notion that Canada has a home ownership problem in the first place,” reads a new report from RBC economic researchers.
RBC notes that 43.1 percent of households under the age of 35 in Canada own a home, compared to 34.5 percent south of the border. Even in Canada’s most expensive major market, Vancouver, the ownership rate among the under-35 set is 35.9 percent, while it’s as high as 50.6 percent in Calgary.
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“Even Toronto and Vancouver — the least affordable markets in the country — rank near the top of global cities on home ownership and have home ownership rates that are about double cities like Paris and Berlin,” according to RBC.
The overall ownership rate in Canada is 67.8 percent. And big Canadian markets compare favourably with cities around the world. For instance, 63.7 percent of all Vancouver households own a home, versus 33.2 percent in Paris, 51.1 percent in New York and 62.4 percent in Sydney.
Still, there’s room for improvement, the bank suggests. The share of home-owning households in Canada is falling. “The decline in the home ownership rate in recent years is a symptom of a larger issue — the lack of housing options that ordinary Canadians can afford in some of our country’s larger markets,” RBC explains.
To tackle this, RBC recommends all levels of government find ways to make it easier for developers to bring new homes to major urban centres, such as by changing regulations. “What millennials in Vancouver and Toronto really need is more inventory of homes they can afford, and a better mix of housing options — be it to own or rent,” the report reads.
The federal Liberal government is mulling what it can do to improve housing affordability for Millennials, though little else is known about what steps are being considered as the upcoming release of the budget next month fast approaches.
RBC regularly monitors housing affordability in major Canadian housing markets. In its last quarterly study, published this past December, the bank said housing affordability in the country was at its worst level since 1990. As of the third quarter, it would require 53.9 percent of a typical Canadian household’s income to afford an average-priced home.
But RBC advises against taking any action that would simply make it easier for some to purchase homes — like tweaking mortgage rules or letting first-time buyers drain more from the RRSPs — without addressing supply issues. Doing so would just spark demand, pushing prices higher.
“So any near-term benefits to buyers could be quickly reversed by a loss of affordability arising from higher property values — an outcome that would pose a challenge for subsequent age cohorts trying to break into the market,” says RBC. “And let’s not forget the impact on household debt—a top vulnerability for our economy.”