Budget Watchdog Finds Gains in Housing Affordability, but Some Areas Still Struggling

A real estate sign is posted outside a home in Pointe-Claire, a city in Montreal's West Island, on May 7, 2024. The Canadian Press/Christinne Muschi

Ottawa’s financial watchdog is reporting considerable progress in narrowing the national housing affordability gap, but the situation appears markedly different throughout the country.

Canada’s housing gap shrank from 80 percent in September 2023 to 34 percent in August thanks to reduced borrowing costs, increased wages, and declining home prices, an updated housing report from Parliamentary Budget Officer Jason Jacques found.

The report released this week assesses affordability by measuring the difference between average home prices and the amount that a typical household can afford.

Home prices reached their highest point in 2022 amid the recovery from the pandemic, but later declined in several markets following the Bank of Canada’s decision to increase its benchmark interest rate to more than 5 percent.

The policy rate is currently set at 2.5 percent after a succession of cuts, which has contributed to lowering mortgage costs, and home prices have not bounced back to their former highs.

Canada’s priciest housing markets have recorded the largest affordability improvements in the past three years, the PBO said.

Toronto and Hamilton, Ont., saw the most significant improvements, although house prices in both markets remain well above affordable levels, the report said. Calgary, Montreal, and Quebec experienced the greatest decline in affordability, though the PBO noted that the cost of maintaining a mortgage in these cities remains comparatively low.

Housing Price Affordability Gap

The affordability gap in Halifax stands at 74 percent, the highest recorded in the study, followed by Montreal at 58 percent, and Hamilton at 52 percent. Ottawa sits at 50 percent, Quebec City at 44 percent, and Toronto at 36 percent.

Victoria, Calgary, and Vancouver came in at 30 percent, 21 percent, and 18 percent respectively.

At the other end of the spectrum is Edmonton’s 4 percent gap, the lowest of any major metropolitan area examined. Winnipeg was the second-lowest, but still sat well above Edmonton with 18 percent.

The report also assessed the financial stability of households by examining mortgage debt service ratios — the proportion of household income allocated to repaying a home loan.

The first six months of 2025 has seen “significant progress” in returning housing affordability to levels observed in 2019, based on mortgage debt service ratios, the PBO said, noting that these costs in Toronto, Hamilton, Vancouver, and Victoria have “fallen considerably” since the previous assessment. Even so, most households in these cities are extended beyond their normal borrowing capacity, the report said.

“In the first half of 2025 our results show significant progress in moving toward 2019 mortgage debt service ratios at the national level and in the most unaffordable housing markets,” the PBO said. “That said, mortgage debt service ratios remain well above their 2012-2014 average levels in most of the [census metropolitan areas] considered, suggesting that average households in these areas have stretched their finances and are more financially vulnerable.”