Canadian Housing Affordability Got Worse Under Trudeau, But Did He Do The Worst?

Prime Minister Justin Trudeau did the worst job with housing in the history of leaders. No, it was definitely Prime Minister Stephen Harper that oversaw the worst… No… this goes back to… Brian Mulroney? Uh, that was 30 years ago, but whatever. 

Ever since Canada’s election kicked off, everyone’s been arguing about housing. More specifically, whether the current Prime Minister (PM) dropped the ball on affordability. We hate data-less arguments, so we thought we would crunch the numbers to provide some gas to pour on those dumpster fire arguments. Consider it our little gift to the world.

The truth is PM Justin Trudeau has overseen one of the fastest declines in affordability. However, he didn’t oversee the worst drop in the past 40 years — he was just close to it. Let’s take a look at who did the worst.

About Today’s Data 

Today we’re looking at how affordability changed during each prime minister’s time in office. Affordability can be defined in a lot of ways, but we’ll use ownership costs. The percent of income a median household has to spend on ownership costs, to be more exact. For example, if the ratio is 50%, the median household would have to spend 50% of their gross income to cover costs. We used data provided by RBC, and this is for their national aggregate. That means home types across Canada, so it would be much worse in Toronto or Vancouver. 

One great thing about this metric is the adjustment for mortgage rates. A common argument from policy makers and the industry is it’s cheap to borrow, so housing is cheap! That would be true if home prices and incomes stayed the same when rates drop. Falling rates in tight markets can make it easier for prices to rise though, making things worse. By adjusting for mortgage rates, we get a better picture of how affordability has changed.

One more thing, it wasn’t fair to use PM Kim Campbell in the data, so she was excluded. Her tenure in office was important, but didn’t even have a full year to influence costs. Great. Now on to which PM did the worst or best. 

Canadian Housing Affordability Deteriorated Significantly Under PM Trudeau

The current PM Justin Trudeau hasn’t seen the worst deterioration in affordability. However, he comes pretty close. His first full quarter in office was Q1 2016, and a median household needed 45.1% of their income to cover payments. He’s still in office, but the first quarter of 2021 saw the percent of income hit 52.0%. That’s the national level, Toronto and Vancouver are much higher.

This is a really impressive deterioration of affordability. The index saw costs rise 15.3% faster than their incomes. That’s even with interest rate cuts slashing the cost of borrowing. That didn’t help at all, it actually added fuel to the fire. The cost of ownership is now at the highest rate of income since the 90s bubble.

The current PM is in his second round of public service, and third election, but he hasn’t been in office very long. Adjusting for his time in office, the average quarterly annualized rate of growth was 2.78%. That is, it became 2.78% more difficult to carry ownership costs of a home, per year he was in office. Mortgage rates are now negative in real terms, so this is entirely due to home prices. 

Canadian Housing Affordability By Prime Minister

The percent of income the median household would need to dedicate to purchase a typical home across Canada. Color coded by Prime Minister at the time.

Source: RBC Economics; Government of Canada; Better Dwelling.

PM Harper Didn’t Do A Great Job With Affordability Either

PM Stephen Harper isn’t particularly known for being a champion of affordability. He did do better than the current PM though. His first full quarter in office was Q2 2006, when households needed to spend 42.8% of their income on housing costs. By the time he exited in Q4 2015, they would need to dedicate 45.1% of their income to payments.

Not as bad as PM Trudeau, but also not great. A median household saw the cost of ownership rise 5.37% faster than their incomes. He was PM for 38 full quarters though, so it must have felt very gradual to people. That’s two quarters shy of 9 years, if you’re trying to figure it out. What? You don’t count by quarters? How do you track your kid’s age if not by dividend payments? 

Adjusting for the length of time, it’s much lower than the current PM. The average annualized quarterly rate of growth is 0.57% for the ex-PM. Once again, not great since affordability did deteriorate significantly. However, the current PM is seeing it deteriorate at 5x the rate. They say things happen a lot faster these days.

Canadian Housing Affordability Change By Prime Minister

The percent change in income the median Canadian household would need to to spend on ownership costs by Prime Minister. Positive numbers mean more income was needed (a decrease in affordability), and negative income means less income needed (an improvement in affordability).

Source: RBC Economics; Government of Canada; Better Dwelling.

Canadian Housing Affordability Deteriorated The Worst Under PM Martin

Neither of those PMs oversaw the worst drop in affordability in the past 40 years though. That honor surprisingly goes to PM Martin, who was just before PM Harper. From Q1 2004 to Q1 2006, households went from needing to spend 36.5% of their income, to 42.8% when they left. Ownership became 17.3% more expensive under his tenure, the fastest climb going back to the 1980s.

PM Martin wasn’t in office very long, so the speed of deterioration is blinding. Annualized quarterly growth increased by 7.67% while he was in office. For context, that’s twice the current PM’s rate. It likely wasn’t as noticeable since housing was only slightly out of reach when he started. This one surprised me the most.

Canadian Housing Affordability Change By Prime Minister

The average annualized change in the amount of income a median household would need to spend per year, by Prime Minister. Higher numbers mean ownership costs increased faster than incomes faster.

Source: RBC Economics; Government of Canada; Better Dwelling.

PM Chretien Oversaw The Largest Improvement In Housing Affordability

No, the conclusion isn’t Liberals oversee bigger drops in affordability. Canadians actually saw the biggest improvement to affordability under Liberal PM Chretien. Cost went from 37.8% of income in Q1 1994 to 36.5% of income in Q1 2004. Yes, the percent of income needed declined by 3.4% while a PM was in office. It still wasn’t affordable for the median household, but spending 30% less of your income than you would today, sounds like a deal.

Over the  thousands  10 years he was PM, the cost of ownership made tiny improvements. The quarterly annualized growth works out to -0.34%, which doesn’t sound like much — but it’s a decline. Other recent PMs don’t have the ability to say the cost of ownership improved while they were in office. They’re competing over who did the least bad job.

Over the past 40 years, the majority of PMs have overseen a drop in affordability. This is largely due to poorly managed monetary policy, often leaning on credit growth. Relying on credit growth works for a while, until it doesn’t. A decline in affordability means more money from the rest of the economy is diverted to housing. Housing tends to have the lowest capital velocity when it comes to growing the economy. That tends to result in the reliance on more debt to keep the economy going. It’s the economic equivalent of trying to get out of a hole by digging up.

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  • D 3 years ago

    Canada has the worst economy of any OECD nation. Canada is built on a house of cards and it’s foreign buyers that are propping up this economy because this economy is based on real estate. Pull the rug out and kill the economy. They should have done this back in 2010 but didn’t. Canada has no great industry. Canada is not Japan, or America, or Germany, or even France/UK. Even countries like SKorea and Taiwan have strong industries and great futures ahead. Canada is on the same level as Italy but at least Italy is more liveable. One thing to note. Remember that guy from the big short that predicted the global financial crisis? He’s short on all Canadian banks and knows that CanAda is the weakest economic link in the west.

    • Liam 3 years ago

      They also had the opportunity to do it in 2019 when the economy was doing well and home price growth was starting to stall, but of course we didn’t.

    • Peter Arnold 3 years ago

      Long on cdn banks. Doing great. Been in for long time

  • Don Jason 3 years ago

    How to bring back affordability is the question. These steps will do it

    1. Remove capital gains tax exemption on Prime residence.
    2. Property tax must be based on Fair Market Value of that property, revised every year.
    3. Repeal the Green Belt Act 2005.
    3. Change Zoning laws to allow high rises in every part of GTA.

    • Van YIMBY 3 years ago

      Property tax values in BC are based on fair value, but they’re way too low and you don’t have to pay them if you’re a senior.

      The whole property tax system needs to be revamped.

      • Robert Michael Angus 3 years ago

        Wrong and wrong. Property taxes are assessed yearly and are based on fair value. Some are a bit high and some a bit low, but on average the track very closely to sales. Seniors are not exempt from property taxes although under certain circumstances they can be deferred as a first charge against title, which is essentially a HELOC.

    • Paul 3 years ago

      You sound like a parrot. Stay away from the green belt. The last thing anyone needs is sprawl.

      • Don Jason 3 years ago

        Removing the Green belt is the ONLY solution that will make a noticeable impact as far as Toronto home prices are concerned. Anything else will be just an eyewash.

    • Bill 3 years ago

      You are a fool.

      Many many other parts of the country have very affordable housing. Sometimes you have to move.

      And really …. who cares about Toronto?

  • Fbb 3 years ago

    To solve this problem is easy:
    1. Tax anyone who own multiple residential properties.
    2. To stop people from using corporations to own homes. Ban all corporations from own non rental residential properties such as detached and semi detached homes.

    • questions guy 3 years ago

      a rental property is any property that is for rent… not sure what you mean here

    • Bill 3 years ago

      Brilliant comment ….
      Raise taxes so that I have to raise rents.
      You seem to be someone who doesn’t know how life works. I pay taxes on each and every property I own. I get nothing in return for paying taxes.

      You sound like one of those bitter people that spends all their money partying it up and taking cruises and vacations instead of saving up and getting your money to work for you. And you think those that have worked hard in life and not taking exotic vacations every year should be punished and pay for your poor planning? Give me a break.

  • RW 3 years ago

    That is two Liberals that were worse than one Harper though, so remember that.

    A lot of fear mongering that O’Toole will be like Harper, but people were not even this close to unhappy during the Harper years.

    • Anthony 3 years ago

      Ah, O’Toole. The man who helped draft the FIPA agreement. An agreement which helps generate news lines such as : “Chinese companies could sue Canada over losses incurred due to the Covid-19 pandemic under the terms of a trade agreement championed by opposition leader Erin O’Toole when he was part of the Harper government.”

  • Frank Daugherty 3 years ago

    I don’t care about monetary policy
    — JT

  • Van YIMBY 3 years ago

    Do I vote for the Turd Sandwich or the Giant Douche? I have no idea, this is tough.

  • Joe B 3 years ago

    Quantitative Easing (QE) is as much to blame as our incompetent politicians for the mess that is Canadian real estate. QE distorts what should be natural ebs and flows of market mechanics by fueling buyers to take on the excess credit needed to overpay for a property.

    • Jason Chau 3 years ago

      QE is a direct result of government spending. The credit supply is limited by providers. When there’s less liquidity, rates rise to build competition.

      If the government consumes a large supply of credit while rates are low, the central bank needs to suppress rates with balance sheet expansion and competitively drive rates lower.

      It’s debatable whether the money was needed. It’s not debatable that government borrowing influences the size of QE.

  • Bob Walter 3 years ago

    The real solution is stop manipulating the interest rates and let the free market balance supply and demand.

  • Ron Tickleman 3 years ago

    Hilarious how this is measured. You do realize that the first 1-1.5 years into each PMs tenure will be based on the previous PM policies right? A PM doesn’t start and the very next day make sweeping changes to real estate or monetary policies. If you actually look at it properly that shows that Harper’s policies put him roughly tied with Martin and Trudeau a good clip below them.

    • Jason Chau 3 years ago

      Absolutely not true, because monetary policy is forward-looking. Currency and credit conditions receive a shock as soon as the person is elected.

      Asset prices aren’t based on how they’ve performed, but the expectation of future performance.

  • mp 3 years ago

    Present government will do nothing to bring down the prices. It’s all empty talks aiming to win elections. See how prices will further increase once they come in power again. It’s all nexus of vested interests.

  • Qwerty 3 years ago

    I find the people who want to destroy the green belt very short sighted. Canada has farmable land between Windsor to Quebec City. It also happens to be where 20% of our population lives. If we build condos and roads throughout we lose our ability to grow food. Ever heard of the Canadian Shield? Canada is a rock, impossible to grow food on a rock

    • GKoz 3 years ago

      I assume this is sarcasm unless you think that nothing grows in all of Quebec or Northern Ontario.

    • Bill 3 years ago

      Again, lots of affordable properties in other (and nicer) parts of the country.
      Not sure why you guys are all hung up on Toronto and Vancouver?

  • JCH 3 years ago

    Voters: demand that your Canadian politicians #LetHomePricesFall !!

  • carol 3 years ago

    I find all the responses encouraging good or bad, right or wrong it is good to know there are still a few people out there that are willing to think!! I applaud all of you,,,, keep up the good work..

  • MS 3 years ago

    Housing/shelter/living is a necessity like food. When prices (ownership or rental) go out of control or starts to impact cost of living, negatively impacts majority especially first time buyers who want to own or new renters who are forced to pay crazy rental prices compared to their incomes.
    Homes should not be only for speculative and/or monetary gains. Everyone has to pay taxes on miniscule bank interest income, stocks and other investments. So why not start heavily taxing people who have more than 1 property. Increase tax for 2nd, 3rd , 4th property etc.
    Corporations and people in disguise of corporations should be disallowed to even buy residential real estate in addition to Foreign buyers govt. is proposing. This should level the field for many prospective first time buyers and hopefully make rents more affordable.

    • Bill 3 years ago

      Natives pay zero in taxes even if they have full time, good paying jobs.

      There’s a very good starting point.

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