Why is Canada's housing market so unaffordable?

Canada's housing affordability crisis has moved well beyond a cyclical problem. The 2026 Demographia International Housing Affordability report found Canada's overall median multiple — the ratio of median house price to median household income — reached 5.4, placing the country in the "severely unaffordable" category.

By comparison, the United States recorded a median multiple of 4.5 and the United Kingdom 5.2. The internationally accepted threshold for affordable housing is a ratio of 3.0 or below.

The numbers are especially stark at the country's largest markets. Vancouver ranked among the world's least affordable major housing markets with a median multiple of 10.8, while Toronto recorded 7.6. Canada was also one of only two nations in the study to record no improvement in housing affordability in 2025, while four of the eight countries surveyed showed measurable gains.

Understanding why requires looking at several interconnected forces that have compounded over decades.

The supply gap

The most fundamental driver of Canada's affordability problem is a chronic undersupply of homes relative to demand. Canada Mortgage and Housing Corporation (CMHC) chief economist Mathieu Laberge estimates Canada could have built nearly 30% more homes between 2006 and 2024 if its housing supply had reacted to demand the way it does in the United States — and home prices could have been roughly 10% lower.

CMHC says Canada has tighter rules when it comes to land use compared with those in the US, which makes it more difficult to add new housing supply quickly. Some of Canada's largest cities also face geographical constraints, while fewer major urban centres than in the US makes many households captive to a handful of cities, slowing the construction industry's response to changes in housing demand.

The regulatory drag is measurable at the local level. A separate CMHC study published in February found that when a city's land-use rules become 10% more restrictive, house prices rise by approximately 14% — a compounding penalty accumulated across two decades of municipal inaction on housing approvals. Vancouver and Toronto, the country's most constrained markets, recorded rezoning approval rates of just 47%.

CMHC estimates Canada needs to build around 430,000 to 480,000 new homes annually by 2035 to restore affordability. Current construction is running well short of that target, and housing starts are expected to continue to slow down through 2026, with a more significant decline expected in 2027 and 2028 as developers face high costs, weaker demand and more unsold homes.

The cost of building

Supply constraints are compounded by the cost of delivering new housing. Taxation accounts for roughly 36% of the cost of a new home in Canada, with development charges, HST and land-transfer taxes making up the largest share. In Toronto, high municipal fees and lengthy approval times — currently averaging 20 months — add an estimated $43,000 to $90,000 to the cost of each new home.

Those cost pressures have direct consequences for brokers and their clients. Elevated construction costs push developers toward higher-margin projects in established markets, reduce the viability of affordable and mid-market housing, and shrink the supply pipeline at precisely the moment demand remains elevated.

The income gap

The other half of the affordability equation is income. Home prices rose 53% between 2015 and 2025 while incomes rose only 13%. That divergence has left mortgage debt service eating up a growing share of household budgets.

National Bank of Canada's Housing Affordability Monitor recorded a ninth consecutive quarterly improvement in Q1 2026 — the longest streak on record — with the mortgage payment as a percentage of income falling to 52.3%, its lowest level in four years. Even so, affordability remains stretched, with the indicator sitting well above its long-term average of 40.6% since 2000.

The Parliamentary Budget Officer estimated that 2.4 million Canadian households were in core housing need as of 2024, up from approximately 1.74 million at the start of Canada's National Housing Strategy in 2017, with that figure projected to reach 2.6 million by 2027 under current policy trajectories.

The pandemic amplifier

The affordability crisis that existed before 2020 was dramatically accelerated by pandemic-era monetary policy. During the COVID-19 crisis, central banks slashed interest rates to historic lows.

Cheap borrowing fuelled a surge in purchasing power, allowing buyers to take on larger mortgages with low monthly carrying costs — directly driving up asset prices. With international travel restricted and remote work normalized, discretionary income was redirected into real estate.

That demand surge hit a market that was already structurally under-supplied. Prices surged, then the Bank of Canada's rate-hiking cycle from 2022 to 2024 delivered a second shock — lifting monthly carrying costs to levels that eliminated buyers who had stretched into the market during the pandemic boom.

Where affordability stands today

The cyclical improvement now underway has not resolved the structural problem. Canada's nine-quarter improvement streak has brought the mortgage payment-to-income ratio back to 2022 levels. For brokers advising clients in Vancouver and Toronto, the gap between short-term gains and long-term affordability remains the defining challenge of the current market.

Wendell Cox, principal author of the 2026 Demographia report, argued that "many Canadians assume housing affordability challenges are simply the result of growing cities and strong demand, but the international data tell a different story. The evidence shows that housing affordability is strongly influenced by policy choices that affect land supply and housing development."

The report points to Edmonton as a counterexample: Canada's most affordable major market at a median multiple of 3.6, representing the highest affordability ranking ever recorded for a non-American market in the survey's 22-year history.

The implication is clear — geography and demand are not destiny. Policy choices about land use, zoning, and development approval timelines have played a decisive role in producing the affordability gaps Canada now faces.

For mortgage brokers working with first-time buyers, the picture that emerges is one where cyclical relief — lower rates, modest price corrections — can ease the monthly payment calculation but cannot close the structural gap between Canadian home prices and Canadian incomes.

That gap was three decades in the making, and resolving it will require sustained policy reform rather than the next rate cycle.

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