Canadian real estate is some of the most expensive in the world, and incomes are struggling to keep up with it. Statistics Canada (Stat Can) Census 2021 data shows over a quarter of homeowners in urban downtowns are in shelter poverty. The term is used to define a household that spends more than 30% of their income on shelter costs. Toronto and Vancouver have seen over a third of homeowners cross this threshold.
Shelter Poverty and The Rising Bar
Canadians tend to normalize spending a large share of their income on housing. However, a third of your income is the cut-off for mortgage qualification. Spending this much, or more, fits the technical definition of shelter poverty. It might not seem like that when home prices are rising tens of thousands per month. However, it might feel like that when they’re falling that much.
Canada’s bank regulator expressed some concerns in this area regarding CLPs. OSFI argues CLPs might be hiding how stressed households are. The program allows mortgage payments to be immediately borrowed once they’re made. It’s a problem.
As the linked article mentions, that definition has changed over the years. In the 80s, a household was considered shelter poor if they spent more than 25% of their income on shelter costs. That definition was pushed to 30% by the 90s, normalizing the loss of another 5 points of income. Moving the bar is one way to reduce poverty statistically, people just aren’t helped by it.
Over A Quarter of Canadian Homeowners Are In Shelter Poverty
Over a quarter of Canadian homeowners in downtown urban areas fit this measure. Canadian cities had an average of 26.4% of owners spending over 30% of their income on shelter. Keep in mind, this isn’t just recent homebuyers. It’s a share of the total of homeowners across urban downtown areas.
Over A Quarter of Canadian Homeowners In Downtown Urban Areas Are In “Shelter Poverty”
The share of homeowners spending more than 30% of their household income on shelter, across downtown urban areas.
Source: Statistics Canada Census 2021; Better Dwelling.
Over A Third of Toronto and Vancouver Homeowners Are In “Shelter Poverty”
Canada’s Big Three cities have the largest share of homeowners spending over 30% of income on shelter. Toronto (36.2%) and Vancouver (33.4%) occupy the top spots, in that order. Both cities have over a third of households fitting that definition. Montreal (30.9%) is a little better, but not much.
Homeowners In Canada’s “Affordable” Cities Are Also Strapped For Cash
It’s not just large cities where homeowners are stretched these days. The next three cities on the list would be considered traditionally “affordable.” The share of owners spending more than 30% of income in Windsor (27.3%), Halifax (26.9%), and Kelowna (26.5%) are very high. They beat the national average, with household incomes not far off.
Most Canadians Couldn’t Buy A Home At Today’s Prices
It’s worth emphasizing — this is total homeowners, not just recent homebuyers. More recent buyers are more likely to spend an unreasonable share of income. National Bank of Canada (NBF) estimates a median buyer needs to spend 63.9% of their income to carry a mortgage. It’s worse in Toronto (91.0%) and Vancouver (96.9%), where prices are higher but incomes aren’t much higher than median. Much more affordable Montreal (45.6%) isn’t as affordable as it was once known for being.
Higher housing costs aren’t just a worry as interest rates climb, but produce risk in any case. Even if the market was stable, the more households spend on shelter, the less they consume. Not for a year or two either, but potentially decades of income will be diverted from the economy.
Canada’s highly indebted households is one of the primary reasons the OECD has it forecast to be one the worst performing advanced economies for decades.