The Gap Has Become a Chasm
Stratospheric housing prices leave earnings far behind
Generation Squeeze has been busy crunching the latest data on housing prices in Canada, building on past work to expose the disconnect between home values and earnings from paid work.
Spoiler alert – what we’ve found isn’t pretty. Over the coming months, we’ll be releasing the punchlines for jurisdictions across Canada. We started with Ontario to give that province the most up-to-date information on housing ahead of their election earlier this year.
Ontario just suffered the worst erosion of housing affordability in the last half century.
Since 2018, average home values in Ontario grew by nearly $265,000, or 44%. That’s a larger increase than in any other province.
Ontario’s housing system has never worked worse for protecting affordability.
A typical young Ontarian now has to work 22 years to save a down payment on an average home – an increase of 6 years over the pandemic. To close the gap between prices and earnings, average home values would need to fall $530k (over 60%), or average earnings increase by 150% to $137k/year. Unsurprisingly, there’s been a 20% drop in the number of younger people who own homes… and their consolation prize for being locked out of the market is rising rents.
Ontario’s housing system has never worked better for producing wealth for homeowners.
Rising home prices generate big wealth windfalls for homeowners – especially older Ontarians who got into the market years ago. Of the 1 trillion in additional housing wealth gained since 1977, those over age 55 got 68%. Those under age 45 got 11%.
Yes… there are solutions!
Solving the housing crisis isn’t just about building more homes, as nice and tidy as that would be. But there are concrete steps we can all ask our leaders to take:
- Commit to restoring housing affordability for all by having home prices stall (or even fall) so earnings can catch up. This isn’t out of reach – recent polling shows that 66% of Ontarians support the idea.
- Reduce the home ownership tax shelter. Housing wealth windfalls gained while homeowners sleep and watch TV shouldn’t be taxes less than the hard work Ontarians do at their jobs. And our tax system shouldn’t continue to privilege home owners at the expense of renters.
- Remedy the mismeasurement of housing price inflation. Good decisions need good data, and right now Statistics Canada isn’t delivering. We need an inflation measure that better includes home prices, so that rapid rises over recent decades better inform economic policy decisions.