Looking back on housing unaffordability, and ahead to mortgage rate shock: CMHC

Looking back on 2023, the unaffordability of housing in Metro Vancouver has been a significant story, and stats out this year show just how far income has fallen behind home prices in the region.

The Canada Mortgage and Housing Corporation says if you look at it as a ratio, housing prices outstrip income by more than 14:1 in the greater Vancouver area, well ahead of second-worst Toronto at 9:1.

The price to income ratio is much more balanced in other parts of the country — it is the lowest, at 3:1, in Atlantic Canada.

In a year-end recap of its housing reports, the CMHC pointed to a link between unaffordability and difficulties developing land, noting Vancouver and Toronto have the strictest land-use policies and the longest delays in approvals, unearthing “a compelling connection between land-use regulations and housing affordability, particularly in highly regulated cities.”

The CMHC says a July 2023 survey “shed further light on the impact of stringent zoning laws, height restrictions and other regulatory measures on the availability and cost of housing.”

In other words, housing prices are higher in regions where land that can be developed is scarcer and it takes longer to develop what you can.

While the CMHC is looking back on 2023, it is also warning of troubles ahead.

With 2.2 million mortgages up for renewal in Canada in 2024 and 2025, it reiterates that interest rate shock is going to be a pressing issue.

The CMHC says 45 per cent of all outstanding mortgages in Canada face higher interest rates on renewal over the next two years.

“Most of these borrowers contracted their fixed-rate mortgages at record-low interest rates and, most likely, at or near the peak of housing prices around 2020 – 2021. This holds true for households who took out a mortgage when buying their new home. It also applies to the numerous existing homeowners that used the increased equity on their property by refinancing and taking cash out for consumption,” the CMHC explained.

The total amount of mortgage loans to be renewed during this period represents over $675 billion.