How home ownership challenges compounded by the country’s housing crisis are locking aspiring first-time homebuyers into rental markets.
Affordability, availability, downpayments, and stress test remain primary roadblocks
First-time homebuyers throughout the country are facing some of the most challenging obstacles to home ownership in decades, due to the convergence of factors that have deepened Canada’s housing crisis, driven down home-ownership rates, and locked a growing number of would-be buyers into the rental market.
RE/MAX Canada examined how price appreciation, rapid population growth, and a limited supply of affordable housing stock have propelled rental markets in six major Canadian cities in recent years. The erosion in affordability – exacerbated by the Office of the Superintendent of Financial Institutions (OSFI) stress test, downpayment requirements, municipal/provincial taxes and closing costs – along with a lack of affordable housing stock, and an obvious disconnect between homebuilders, buyers and municipalities, has brought the country to a breaking point.
EXPERT EVALUATION
“Affordability remains, by far, the greatest barrier to home ownership from coast to coast,” says RE/MAX Canada President Christopher Alexander. “With the average price of a home in most Canadian markets more than doubling between 2006 and 2021, first-time buyers are falling through the cracks. Rental rates that remain above historic levels, the high cost of living, and wages that have not kept pace with price growth pose a serious challenge to buyers hoping to amass a downpayment. It’s near impossible for some buyers, even with steady, well-paying jobs. The dream of home ownership is eroding further and faster than their ability to save.”
NATION OF RENTERS REPORT
How home ownership challenges compounded by the country’s housing crisis are locking aspiring first-time homebuyers into rental markets.
Adding insult to injury, the fallout from the U.S. Tariff announcement last month has served to somewhat destabilize the Canadian economy. Although a 30-day reprieve has since been negotiated, the move has created economic uncertainty in most markets, particularly in Ontario and Quebec, given their close trade ties with the U.S. If the tariffs come to fruition, economists believe the country could enter a recession.
THE SUPPLY SHORTAGE
Housing supply shortages have also been responsible for rising prices. Builders and developers are eager to get shovels in the ground, but projects need to be financially viable to proceed. Constraints include high land costs and development fees, zoning restrictions, lengthy approval processes and other red tape. Beyond that, there is a disconnect between what is being built and buyers’ needs, with smaller units overwhelming the market when more spacious “missing middle” product is desperately needed to support urban family living. Municipal, provincial and federal governments must move quickly to revise their housing plans, which have long focused on greater density to ensure that the new housing mix matches the needs of residents. Policy shifts and zoning reforms will be necessary to support density and intensification goals.
Construction of affordable housing stock has seriously lagged over the past two decades, according to the Social Housing Supply Mix Strategy 4A Report by Toronto Metropolitan University, City Building, University of Toronto, and School of Cities.
The country was able to build 45,000 federally assisted affordable units in 1971, but it took almost 25 years to build the same number of properties between 1995 to 2019.
HEFTY DEVELOPMENT CHARGES
Development costs and municipal charges also need to be addressed in major urban centres including Toronto, where they have risen to their highest level on record, to $189,325 per low-rise unit in 2022, up 21 per cent over 2020 levels, according to the Canada Home Builders Association Municipal Benchmarking Study, prepared by Altus Group in October of 2022. Hamilton, with the second-highest municipal charge per unit of $61,431, was up a substantial 49 per cent over 2020 levels, followed by Vancouver at $61,414, which increased 29 per cent. Ottawa rose 11 per cent to $46,320, while Calgary jumped 15 per cent during the same period, climbing to $42,800. Halifax had much lower municipal charges per unit, at $9,629, but that was still up 41 per cent from 2020, when it was just $6,823.
LOWRISE DEVELOPMENT CHARGES (2020 VS. 2022)
- TORONTO +21% TO $189,325
- HAMILTON +49% TO $61,431
- OTTAWA +11% TO $46,320
In the wake of skyrocketing development changes, Ontario has experienced a decline in housing single-detached starts. According to CMHC, construction starts fell 13% year-over-year, from 15,089 units in 2023 to 13,161 in 2024. Overall across all housing types, starts declined by 16%, from 85,770 in 2023 to 72,118 in 2024.
UNPRECEDENTED POPULATION GROWTH
With the nation’s chronic housing crisis, the issue of supply and demand as well as rising housing values are unlikely to improve. In fact, population growth has both underscored and exacerbated the undersupply of housing in Canada’s major cities. Looking forward, serious housing gaps exist in relation to projected population growth. While Canada has eased immigration levels, the significant shortfall in housing is expected to persist. Over the 15-year period between 2006 and 2021, Statistics Canada reported in its Annual Demographic Estimates that the country’s population climbed by 17.4 per cent, adding another 5,668,671 residents.
POPULATION GROWTH BY MAJOR CANADIAN CITY (2006-2021)
“If you factor in the accelerated growth that occurred between 2021 and 2024, when further double-digit increases were recorded in Vancouver (+12.2%), Calgary (+15.5%), Ottawa (+8.7%), Toronto (+9.8%), Hamilton (+5.2%) and Halifax (+10%), the strain on the Canadian housing market is palpable, and the pressure is not expected to ease. Statistics Canada’s medium growth (M1) projections predict the population could reach close to 52.5 million by 2050,” says Alexander.
THE BUY OR RENT DEBATE
Those hoping to enter the housing market for the first time have been caught in the middle, unable to afford to buy, as they continue to rent at rates that are on par with mortgage carrying cost in many cities.
TO BUY: $2,665/MONTH
UNIT TYPE: $600,000 property in the Greater Toronto Area DOWNPAYMENT: 10% ($60,000) MORTGAGE: 4.1%, 5-year fixed rate, 30-year amortization
TO RENT: $2,360/MONTH
UNIT TYPE: 1-bedroom apartment in Toronto
Approximate costs. Source: Ratehub.ca, Rentals.ca-Urbanation January Rent Report
Demand for rental units accelerated between 2022 and 2024, amid housing supply challenges and as purchase prices surged. The result was tight rental market conditions, upward pressure on rental rates, and even fewer options for those seeking housing. Although the January 2025 Rentals.ca-Urbanation Rent Report found that residential rental prices and vacancy rates have moderated somewhat, with the average price of a residential rental falling to a 17-month low of $2,109 in December 2024, rates have remained relatively frothy in most major Canadian markets. Vancouver claimed the title of the country’s most expensive rental market, sitting at $2,512 for a one-bedroom unit, followed by Toronto at $2,360, Halifax at $2,030, Ottawa at $2,012, Hamilton at $1,723, and Calgary at $1,606.
PROBLEMATIC POLICY
“In additional to amassing a downpayment, qualifications for potential buyers include being able to carry costs at rates two per cent higher than those posted,” says Alexander. “Rolled out in 2018, the OSFI stress test hampered home-buying activity in virtually all markets across the country. A once-in-a-lifetime event–the pandemic–supercharged the nation’s housing markets in late 2020 when the Bank of Canada dropped the overnight rate to 0.25% to withstand the economic impact on the county. With the conditions that necessitated intervention no longer at play, the need for government to police prospective homebuyers is a duplication when banks and lending institutions already have mechanisms in place to do just that. The OSFI stress test has outlived its usefulness and is unnecessarily inhibiting capable, entry-levels purchasers.”
Canada was once more vested in home ownership. In 2006, for instance, Canada Mortgage and Housing Corporation relaxed mortgage rules for homebuyers. It raised insured amortization periods from 25 to 40 years over a 10-month period and introduced zero downpayment mortgages and interest-only mortgages (for the first 10 years of the mortgage). The Canadian housing market soared in response, reporting its best year on record in 2007. By July of 2008, the amortization period was shortened from 40 years to 35 years and the requirement for a five-per-cent minimum downpayment was established.
“While the Great Recession shook housing to its core in the United States, the Canadian housing market weathered the storm in spite of less-stringent mortgage rules,” says Alexander. “Delinquency rates for mortgages rose to seven per cent in 2009 in the U.S., while mortgage arrears in Canada hovered at just 0.42 per cent. In seeking to shore up potential risks to the housing and financial sectors to avoid a U.S.-style fallout, we saw an over-tightening of the qualification process that persists well beyond the conditions that prompted it.”
CMHC began rolling back home-ownership incentives in 2012. It established the stress test in 2018. Toronto homebuyers are the only buyers in the country subject to a double land transfer tax at both the provincial and municipal level. Halifax implemented its own version of a buyer’s tax, while Hamilton is mulling the decision to launch its own land transfer tax. As the associated costs of home ownership climb, Calgary continues to experience strong migration, thanks in large part to its affordable housing and it’s ‘no land transfer tax’ policy at both the municipal and provincial level.
Creating Opportunity for First-Time Homebuyers
“It’s time to revisit the potential to relax policy to allow buyers to enter the market and build equity,” says Alexander. The 2023 cycle of the Statistics Canada Survey of Financial Security (SFS), released in late October of 2024, demonstrates why today’s youth believe home ownership is key to future wealth. The highest income earners in the youngest age group—under 35—who owned their principal residence had a median net worth of $457,100 last year, while renters in the same group had a median net worth of $44,000. Families where the highest income earner was under 35 years of age experienced the largest percentage increase in their real median net worth from 2019 to 2023, up 179 per cent during this period to $159,100.
“The disparity in net worth between young homeowners and renters is striking, and reinforces our belief that governments at all levels should be working toward increasing home ownership levels,” says Alexander.
Greater incentives for first-time homebuyers are expected in coming months as small condominium units designed for investors come to market in Toronto. The rapid rise in condominium inventory levels has caused an exodus of investors who are unable to cover their costs and are facing a negative cash- flow situation.
“There is an opportunity for first-time homebuyers to absorb these listings,” says Alexander. “While they are small and designed for two people, they may very well be the most affordable entry point to Toronto’s housing market in recent years. The move to buy one of these units provides a stepping stone for first-time buyers, by giving them the means to enter the market at an affordable price point. The decision to move can be made in future years when equity gains can pad their progression to a larger condominium or freehold property.”
All stakeholders need to come to the table to prioritize creative solutions for Canada’s housing market now—not years from now. “We need policies and incentives that support home ownership as a feasible reality for Canadians, not a distant or improbable dream,” explains Alexander. “The housing crisis is already a chronic issue. The longer it takes to respond, the greater chance for home ownership to slide further out of reach. Each percentage point contraction in the national home-ownership rate represents thousands of Canadians locked out of the housing market. The financial, social and societal costs of the status quo will be steep, impacting everything from Gross Domestic Product (GDP) and birth rates to Canadians’ financial security and prospects for the future.”
