Where Can I Move to Buy a House I Can Afford?

I will never be able to buy a home

So goes the lament of many young Canadians. When we my wife and I bought our first home in Chilliwack, BC, in 1996, we paid less than $140,000. Homes in the same neighbourhood are now going for between $700,000 and $900,000. When we bought our current house in London, ON in 2000, it was listed for less than $180,000. Detached houses in our general neighbourhood are now selling for at least $850,000, and few are available. Although home prices should go up with inflation, and historically that has been the case in Canada, these figures are significantly above the general cost of living increases. Although not a perfect representation, using the Bank of Canada’s inflation calculator, something that cost $180,000 in 2000 should cost a shade less than $300,000 today. Clearly home prices have become untethered from general inflation.

 

What’s going on?

Interest Rates

In the mid-1990s, our first 5-year fixed-rate mortgage was for 7.5%. We were able to “port” our mortgage to our new home in London; when we renewed it in 2001, we chose a 3-year fixed rate and paid 4.75%. In 2021, before inflation started taking off, interest rates were in the low 2% range. In other words, one factor in the increase in housing prices was the decrease in interest rates. It made it more affordable to pay more for a home because the interest rate meant that you were paying less for each dollar borrowed. That led to would-be buyers being willing to bid ever higher.

 

Now that interest rates have gone up, people who bought their homes at high prices are unwilling to sell them for much less than they paid for them. The prices on the way down are relatively “sticky.” Unless the increased interest rates on mortgage renewals force homeowners to sell, thereby flooding the market with new supply at “fire sale” prices, the situation seems unlikely to improve for buyers.

 

Immigration

Earlier this year, Canada’s population passed forty million. Since the birthrate in Canada is relatively low, one of the main factors in Canada’s population growth is immigration. This has increased demand for housing that just isn’t being supplied. Included in this growth are temporary or seasonal workers as well as international students. A growing population is generally good for the Canadian economy as the increase in population tends to lead to a corresponding increase in both the supply and demand for goods and services. However, included in that demand is a demand or need for more housing to provide shelter for both new Canadians and the revolving cycle of temporary residents.

 

Supply

The problem with this demand is that Canada is falling behind in the supply of necessary housing. Recent news has highlighted the reality of refugee claimants being unable to find appropriate housing while their claims are being adjudicated.

 

Universities and colleges have significantly ramped up their acceptance of international students because of the lucrative international tuition fees that these students bring with them. Unfortunately, these same institutions have not felt it necessary to supply suitable housing for the growing population of students. This has pushed students to search for housing in the surrounding community, often at high prices and substandard levels. In turn, this has crowded into the supply of housing available to the general population and further put upward pressure on prices, particularly for rental housing.

 

In addition to the inadequate supply of housing to meet the demand, there is another supply crunch that the construction industry is dealing with; that is, the shortage of construction workers and skilled tradespeople. Without a ready supply of workers in the field, the growth in housing is going to be limited.

 

Government Policies

Government policies have been a mixed bag when it comes to increasing supply and affordability. Often, the policies have been contradictory. For example, policies proposed in the last federal election to ban the use of foreign money to buy residential housing, or to impose a foreign buyer’s tax should put lessen the upward pressure on home prices. However, the introduction of the First Home Savings Account (FHSA) in addition to the ongoing Home Buyers Plan, simply increase demand, which in turn increases prices.

 

There are also bylaws and policies at the provincial and municipal levels that hinder growth in construction and where much of the decision-making responsibility lies. Zoning that limits large areas of a city to anything but detached homes is one example.

 

Mobility

People do not want to move. This includes immigrants who understandably settle in the major cities where many from their national group are already living. Refugees usually settle where their sponsors are, but they too often relocate to larger cities.

 

Among those born in Canada, the inclination to stay near where they were raised is also strong. There is the natural desire to live within one’s community and near one’s relatives so that grandchildren will know their grandparents, for example. Other factors include the need to take care of relatives or that the spouse or children do not want to move. While these social factors are meaningful and important, this lack of mobility also has its own impact on moving to where one can find not only work, but potentially more affordable housing.

 

Is moving a solution?

While housing prices are generally up across the country, it is in the largest centres of Canada that housing has gone up the most. Out of curiosity, I did an online search for “affordable Canadian cities” and “cheapest cities in Canada” to see what would come up. I boiled the results down to cities with at least two mentions among the lists (Column Heading: No. of mentions). I then looked on the realtor.ca website and removed any cities that did not have more than one 3-bedroom 2-bath house available for between $200,000 and $500,000 (Column Heading: $200K – $500K). Next I searched on the website of the Canadian Real Estate Association (CREA) for the average prices of homes for sale in those cities. Their latest data was for June 2023 (Column Heading: June 2023 CREA Avg). Finally, I added the population of each of the cities listed according to the 2021 census (Column Heading: Population (2021 Census)), and then provided a ratio of the population versus the number of houses listed in the $200K – $500K range (Column Heading: Population to Housing Qty Ratio).

 

This table is listed below:

 

 

To see the full workbook, click on this symbol in the bottom right corner. This will allow you to expand the workbook and re-order the columns. If you are unfamiliar with Excel, the arrows beside the column headings will allow you to re-order the columns.

 

One highlight for me in my review of this data is the large number of houses in the major cities Edmonton and Winnipeg. These are provincial capitals that have significant institutions of higher learning as well as professional sports teams. You can, of course, sort them to according to your own priorities.

 

This little table is by no means the answer to the challenges of housing, but to the extent you are seeking a house to buy in Canada and are mobile, you may wish to consider some of these cities as potential new homes.

 

This is the 209th blog post for Russ Writes, first published on 2023-08-07

 

If you would like to discuss this or other posts, connect on Facebook,  Twitter aka X, LinkedIn, or Instagram.

 

Click here to contact me for an appointment.

 

Click here for a 2-week free trial of the Money Architect Financial Planning platform.

 

Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.

 

Image: urbangreencohousing.ca