The lowest mortgage rates in a generation did not improve housing affordability, according to new research on housing trends over the past six decades
When it comes to discerning long-term trends, it can be hard to see the forest for the trees. Altus Group has just released a snapshot of the proverbial forest with its latest report: Hindsight is 2020: How the 2010s Stack Up in Canada’s Housing History.
One of the most notable finds was that lower mortgage rates did not improve homeownership affordability in the 2010s. Affordability, Altus Group finds, is a composite of three factors: house prices, interest rates, and income. Interest rates over the past decade are the lowest that they’ve been in generations—the average posted five-year mortgage rate was highest in the 1980s at 13.6%, and in the 2010s it was 5.1%. This potential benefit was offset, however, by higher home prices both in absolute terms and in relation to average family income.
The average home price in the 1960s was $136,000 in today’s dollar compared to $308,000 in the 2000s and $428,000 in the 2010s; as a result, annual mortgage payments in relationship to income has crept up. In the 1960s, the annual mortgage payment was 16% of the average family income, compared to 20% in the 2000s and 23% in the 2010s.
“Of course, other factors also would have come into play that differentiated access to homeownership in different decades, including the extent of rate discounting and changes in various mortgage-related policies,” the report reads.
Total housing starts in Canada during the 2010s is virtually identical to the previous decade. Housing starts reached 201,000 units on an average, tying for the second-best decade ever recorded, after the 1970s. The decade saw its lowest housing starts in 2013, with just under 188,000 units. The highest starts of the decade were recorded in 2017 at 220,000 units.
“In general, the 2010s were not a very volatile period for annual total housing starts at the Canada-wide level,” the report reads. “In fact, it was the least volatile of any of the past six decades for annual total housing starts.”
Although the overall number of housing starts didn’t change much from the first decade of the century to the next, the composition of those housing stars differed dramatically. In the 2000s, just under three-quarters of housing starts were single-family homes, including detached and semi-detached homes, rowhouses, and townhouses. In the 2010s that proportion had dropped to just over half. Instead, the 2010s ended up being the strongest decade ever for apartment starts, with around 92,000 apartment units being started and heavily focusing on condominium apartments. This is more than in the 1970s, which saw robust activity in purpose-built rental construction.
Population growth is fuelling much of Canada’s overall growth, and while a growing population typically indicates a need for more housing, total population growth alone is not an accurate predictor of housing starts. In fact, the number of housing starts has “fluctuated widely” since 1960.
Other factors, such as age of the population and changes in household formation growth factor into changing housing needs, and household formation growth in particular being influenced by overall economic conditions and housing affordability.
Housing starts were the highest in British Columbia, but Manitoba and Saskatchewan were also regions that saw starts that were both above the long-term average as well as being higher in the 2010s than they were in the 2000s.
