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With the average price of a home in Canada rising 35% since 2019, many people worry that homeownership may be getting out of reach, especially for younger, first-time buyers. It's a valid concern as the three factors that affect housing affordability, price, income and mortgage rules are all working against them right now. Prices continue to rise, however, incomes have not kept pace. At the beginning of the pandemic, interest rates fell, which drew more buyers into the market. But changes to the mortgage approval criteria made it that much more difficult - especially for first-time buyers.

Some experts believe Canada is in a housing bubble that will eventually burst, returning home prices back to where they belong. What then will it take to intentionally make housing more affordable?

Not Enough Homes to Meet Demand

Just like many other consumer markets, real-estate prices are determined by supply and demand. The more scarce homes are, the more competition there is among buyers, driving prices up. The solution is to build more homes, increasing the supply and easing the competition. 

During the last federal election, housing affordability was a hot topic. Most of the major political parties promised to build more homes over the next five to ten years. But what does it mean for the government to "build more homes?" Look around Niagara Falls, and there are plenty of new housing developments. In fact, construction cranes and sales presentation centres are a common sight in many Canadian cities. 

There’s More to the Story

New home construction doesn't really tell the whole story because it doesn't explain what's happening to the current supply of houses. For example, housing gentrification in many areas is changing the mix of available homes, moving from smaller, more affordable starter homes to larger luxury homes. 

Creating new homes actually takes a concerted effort by all levels of government to put the policies and plans in place to make it possible for a mixture of housing types to meet the needs of different income levels.

Think About the Variety 

Canada has one of the highest rates of homeownership in the world, with 68% owning their home rather than renting. As housing prices increased and the supply dwindled, rents also increased. The number of rental units has decreased as units are converted to owner-occupied homes. In an affordable housing strategy, governments need to think about building up the supply of all types of housing. 

Look Beyond the Cities

Developers are often drawn to larger cities, where prices are higher, and the population is larger. It is certainly a valid business reason. However, smaller communities across the country saw their housing costs increase substantially when people began leaving Toronto and other large cities. Incentivizing housing builds in the places that need it most should be part of the strategy. Municipalities must also be on board with the plans and the means to put infrastructure in place to support new homes, manage additional traffic, provide access to schools, transportation, and more.

Support for the Construction Industry

The strategy to increase the housing supply also has to consider who is going to build those homes. Canada already faces a shortage of skilled workers and building supplies. Labour and material shortages are expected to continue for several years unless programs are put in place soon to encourage the development of younger workers entering the workforce. 

Make the Mortgage Rules Fair

Mortgage rules became more strict this year, which delayed new home buyers from getting into the market. It doesn't decrease demand but rather delays it until the future. Along with building new homes, the rules need to be adapted for younger homebuyers. One of the ideas proposed by lenders is to allow 30-year amortization for first-time buyers. Changing the mortgage stress test could also help.

The solution to making housing more affordable in Canada is to increase the supply of houses available. However, it's a complicated problem that will take cooperation from all levels of government to change policies and incentivize builders to make a difference. Until that happens, a mortgage broker can help you find the most affordable mortgage option to allow you to purchase a new home sooner than later.