Renters in 36 of Canada’s 50 Largest Cities Unable to Afford Starter Homes

A recent study by Point2 revealed that in Canada’s most populous cities, the combination of soaring home prices and steep mortgage expenses continues making it progressively challenging for renters to transition into homeownership.

In the past, starter homes were easily defined as small, entry-level properties priced around $200,000. These homes offered an accessible entry point into the housing market for first-time buyers. However, the present-day housing market paints a different picture, as starter homes increasingly defy a rigid definition. Regardless of size, ranging from compact to expansive, or price, ranging from below $200,000 to over $700,000, it is the market that now dictates what constitutes a starter home.

As a result, a study was conducted on starter homes in Canada’s 50 largest cities to gain better insight into the affordability of starter homes for renters.

Some highlights from the study include the following.

In 36 of Canada’s 50 largest cities, renters find themselves unable to afford a starter home within their city limits, as their incomes fall up to 60 per cent short of what is necessary for homeownership.

Within Ontario and British Columbia, including cities like Toronto and Vancouver, the situation is even more challenging. Renters in 12 Ontario cities and 2 British Columbia cities earn 42 per cent to 59 per cent less than the amount required to buy a starter home.

Only 14 cities across Canada have renters earning 100 per cent or more of what they would need to afford an entry-level home. Distressingly, 11 cities have virtually no inventory of starter homes available, while 26 other cities show starter home shares below 10 per cent. Renters and aspiring buyers in 13 cities, however, have relatively more options. Here, starter homes represent at least 10 per cent of the market, with some cities like Vaughan, Regina, and Markham even boasting shares as high as 17 per cent and 18 per cent.

The study revealed that renters in five cities across Ontario face significant income gaps when it comes to affording a starter home. For instance, in Richmond Hill, Oakville, Markham, and Vaughan, the average income stands at $70,000, while to comfortably afford a starter home, they would require approximately $160,000 to $170,000. In Burlington, renters earn even less, despite the starter home prices being only slightly cheaper.

In the 14 least affordable cities, renters’ earnings fall short by 42 per cent to 59 per cent of what is needed to buy a starter home. Except for one city, all these 14 cities have starter home prices surpassing $500,000, with three cities even crossing the $700,000 threshold. This dominance of Ontario cities on the list highlights the severity of the issue, leaving many renters struggling to enter the housing market.

Starter homes now come in various sizes and price ranges, showing a significant shift from the traditional notion of an entry-level home priced around $200,000. In the 14 least affordable cities for renters aspiring to become homeowners, this amount would barely cover the cost of a single room in a starter home.

The study also revealed that renters in 14 cities among the 50 largest have a favorable advantage, as their household income surpasses the minimum required amount to comfortably afford a starter home by 2 per cent to 52 per cent. Notably, Edmonton, AB, and St. John’s, NL, stand out as the most promising locations for renters to become homeowners, as they earn 52 per cent and 50 per cent above the minimum income necessary for a starter home. The key to their advantageous position lies in the fact that the majority of these cities offer starter homes priced below $200,000.

Edmonton, AB, boasts a renter household income of approximately $70,000, and starter homes are priced around $185,000. With a 20 per cent down payment and a 5-year fixed-rate mortgage at 5.75 per cent, this unique combination allows Edmonton renters to be in an excellent position to transition to homeownership, according to the study.

While homebuyers in the other 13 cities on the list may not be as fortunate as those in Edmonton, they still fare much better than the majority of renters in Canada’s largest cities. Even Longueuil, QC, can be considered part of this category, as its renters make $59,342, just $99, or 0.2 per cent, shy of what they need to comfortably afford a starter home.

The study noted that a total of 10 of the 14 cities on the list offer starter homes for less than $200,000. This not only aligns with current affordability standards but also adheres to the traditional definition of starter homes, which were typically priced below this threshold.

The distribution of starter homes among the 50 largest cities shows that only 13 cities have shares of starter homes higher than 10 per cent. Among these 13 cities, only five meet all three criteria for affordability: Regina, SK; Calgary, AB; Edmonton, AB; Saskatoon, SK; and Winnipeg, MB, according to the study. The remaining 37 large cities have progressively smaller shares of entry-level homes, with 11 of them having virtually no affordable options for renters.

While a total of only 10 cities in the study have starter home prices under $200,000, not all of them have many homes currently available at that price point.

Despite discussions about incomes, home prices, and the definition of a starter home, the study noted that the key to affordability lies in the actual availability of starter homes on the market.

A total of 13 large cities offer hopeful possibilities for home seekers. Markham, ON, and Regina, SK, lead with the highest shares of starter homes on the market, each at 18 per cent. Vaughan, ON, follows closely with 17 per cent, while Richmond Hill, ON; Calgary, AB; and Edmonton, AB, all have shares around 15 per cent.

However, while Markham, ON; Vaughan, ON; Richmond Hill, ON; and Oakville, ON, remain highly unaffordable for renters, potential homebuyers in Regina, SK; Calgary, AB; Edmonton, AB; Saskatoon, SK; and Winnipeg, MB, are much more fortunate with better affordability prospects.

While these percentages may not meet the preferences of prospective homebuyers, they still rank as the highest among the 50 cities analyzed. This makes them particularly attractive to renters and aspiring homebuyers from the 11 cities where starter homes are seemingly non-existent.

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