What Factors Affect Housing Affordability?

Affordability is an important aspect of the housing market, and the journey of a home buyer, but before we explain what factors effect affordability, we should clarify what it means.

Housing affordability refers to a person’s ability to afford household expenses. In Canada, housing is considered affordable if their home costs are less than 30 per cent of before-tax household income. About 80 per cent of Canadians are deemed to have their housing needs met through the marketplace, whether through new or resale housing options. But for those who cannot afford marketplace housing, there is affordable housing, which is anything from temporary emergency shelters through transition housing, supportive housing, subsidized housing, market rental housing or market homeownership.
Housing affordability is affected by four key factors:

  • Time: the more time it takes to build a housing project, the more the costs go up. The time it takes for approvals and permits also adds into additional costs, which is why it’s important that municipalities and builders work together to keep these costs down. The City of Calgary is collaborating with industry leaders in a number of areas, including initiatives like Build Calgary. Build Calgary is working on five key initiatives: levies, land supply, regional coordination, legislative framework and commercial-industrial-transit oriented development.
  • Growth: the dispersement of land is directly correlated to the price of land. For example, if there is large demand for building in a particular community in the north quadrant, that drives up the price of the land. The equal dispersion of available land is the best way to keep affordability consistent.
  • Levies: these are fees paid by developers to cover a proportionate cost of necessary infrastructure associated with building. Levies and property taxes are one of the few places municipalities can generate revenue, and levies have gone up 176 per cent since 2010. However, it’s a balancing act because levies keep property taxes and utility costs down, but they increase the cost of new housing.
  • Labour and materials: of course what can affect the cost of housing, is the cost of the materials and labour to get that housing built. These costs are usually directly associated with the economy, value of Canadian dollar, etc.

If you’re interested in learning more about housing affordability, Smarter Growth is a website with lots of free resources on this topic, and CMHC has lots of information on affordable housing in Canada.