Affordable housing has been a hot topic in
recent years, and is even more so now as rental vacancy rates are extremely
tight and housing prices have experienced record rates of increase in Atlantic
Canada. A recent news article caught my
attention, with its reference to a price point – “attainable” – I
haven’t heard as much about, and it inspired me to take a look at what the
difference is, and how each lines up with Atlantic Canadian markets. Then, because alliterations sound better in
threes, I needed a third A: the obvious choice in this context is to look at availability.
First, the definitions, a slipperier
thing to pin down than one might imagine.
Canada Mortgage and Housing Corporation (CMHC) defines affordable
housing as housing that costs less than 30% of a household’s before-tax (gross)
income, absent any requirement for the housing to be provided or made possible
through a government program, and without restriction on tenure or type.
With that definition, affordability
is very much relative: in theory, a $4.3-million home would be “affordable”,
provided your household income is $300,000 – about 1.7% of Atlantic Canadian
households.
Relatively affordable: on the market for approximately
$4.4-million. Source: ViewPoint Realty
Seems likely that this is not the
intention of the definition, or any measures put in place to encourage the
supply of affordable housing. And in
fact, CMHC’s Housing Continuum graphic implies that affordable housing is
separate from market housing. Wikipedia
offers a slightly more specific definition:
…housing which is deemed affordable
to those with a median household income or below as rated by the national
government or a local government by a recognized housing affordability index.

If we combine the two, that would
indicate that affordable housing is housing which costs no more than 30% of the
median household income – and for practical purposes, let’s assume that is in
reference to local median incomes, and not, for example the national figure…more
on that later.
We conducted a very high-level
analysis of the median incomes for the four Atlantic provinces and a selection
of cities. We used average rental rates
for 2-bedroom units because this is by far the dominant unit type for rental
accommodation. The calculation is simple
(very!): divide 30% of the median household income by 12 to get the monthly
income, subtract off the average rental rate and an allocation for utilities of
$150 per month (property tax and water are included in the rental rate;
electricity/heating may or may not be included, so to play it safe, we assumed
that it’s not for most units) and see what’s left over. Great news: positive balances all-round,
averaging $620 per month surplus – hoorah, there’s no affordability issue!
Data Sources: Environics Analytics via Sitewiseweb;
CMHC; Dalhousie University
Here’s the “but”…and it’s not
inconsequential by any stretch. Median
household income is, by definition, the middle of the income spectrum. So, a household earning the median income
being able to afford average costs for rental housing tells only half the
story. Our next analysis worked the
figures backwards: we took the average rent plus the same allocation for utilities,
on an annual basis and figured out how much a household would need to earn in
order for housing costs to equal 30% of their gross income – then figured out
approximately how many households fell below that income threshold, based on
the number of households in various income brackets. Reports of an issue don’t look overblown at
all.

Data Sources: Environics Analytics via Sitewiseweb;
CMHC; Dalhousie University
Prices for owner-occupied housing
have increased substantially over the course of the pandemic. We ran the same sort of analysis as above,
for average/median sale prices in 2020 and 2021. The geographic availability of data is a bit
inconsistent, but our aim is a general idea, so overall, the data is fit for
purpose. Mortgage rates impact the cost
of housing; we used discounted rates (rather than the posted rates) relevant at
the relative times. To keep things
simple, we assumed a 5% down payment, then based on a very unscientific poll
around the office cross referenced against an online monthly expenses
calculator, we allocated 40% of the mortgage cost to cover property tax,
utilities, and insurance costs: rough idea, fit for purpose.
Data Sources: Environics Analytics via Sitewiseweb;
CREA; ratehub.ca
We also looked at the year-over-year
change in house prices: in 2020, the median income was sufficient to afford a
house in all Atlantic provinces, and the selected cities (2020 house price data
for Moncton is conspicuous by its absence), but in 2021, the income needed to
afford a typical house climbed over the median level for Nova Scotia and PEI,
and their capital cities.
Data Sources: Environics Analytics via Sitewiseweb;
CREA; ratehub.ca
Obviously, averages and medians are
the central figures: there will be houses priced
lower as well as houses priced higher, so the above analysis is not to say that
in HRM, for example, you couldn’t find a house priced within your means if your
household income is less than $100,000 (though it’s getting trickier,
especially with our recent embrace of the “offers over” system of home
buying). But this does provide an
indication of affordability, and leads us to the next A on the list:
attainability.
Again, the definition is slippery,
and in some senses, attainability is defined the same way as affordability,
i.e., at no more than 30% of gross household income. It seems that the key difference is the
removal of reference to median income: each income bracket will have its own
price range of attainable housing – and associated appropriate housing types,
categorized by type, size, and tenure.
Implicit in the idea of attainability is that suitable housing exists in
the local market in a variety of forms and price points, sufficient to meet the
needs of the population.
We used data on household income
brackets to model the proportion of households in each province/city by maximum
monthly housing budget. We then used the
same $150 allocation for utilities for rental units to determine affordable
rental ranges, and the same ratios for expenses-to-mortgage (i.e., 60% of
budget is available to service the mortgage, with 40% allocated to property
tax, utilities, and insurance) to determine affordable house prices, as were
used in the earlier analyses. All
figures are approximate at best and should not be relied upon for life
decisions, but they give a sense of what is attainable to each income bracket
from a price perspective.

Data Sources: Environics Analytics via Sitewiseweb
Data Sources: Environics Analytics via Sitewiseweb. Note that the annual income from a minimum
wage job, at 40 hours per week and 52 weeks per year varies by province but all
four Atlantic Canadian provinces would fall towards the low end of the
$20,000-$39,999 income bracket, averaging $26,000 overall.
And so we come to the final A: availability. It's an important one, because it's effectively the supply side of the supply and demand equation, which is the driving force behind prices. For this portion of the discussion, we're abandoning price points in the interest of balancing level of effort that can be allocated to a blog post.
One of the components of the attainable definition was that a variety of housing formats would be available locally to serve the various budgets - the CMHC housing continuum graphic gives a rough sense of what this might look like, as does this Housing Life Cycle graphic borrowed from the City of Belleville, Ontario.
From an availability perspective, we
start with rental tenure. With the
exception of Cape Breton and St. John’s, vacancy rates are low across the
selected cities.
Source: CMHC (annually in October)
At a provincial level, in October
2020, there were just over 3,000 vacant rental units in Atlantic Canada, of a
total rental universe just shy of 114,000 units. Once those 3,000 units are sliced and diced
by price, style, and location, availability is probably problematic.
Source: CMHC (October 2020)
For residential sales listings, we
have to rely on data for Nova Scotia only, due to availability, but we suspect
that a similar pattern will be in evidence in the Maritime provinces at least. Prices continue to climb in 2021, but it
appears that the supply-side driving force behind that trajectory may no longer
be in play: the number of listings for the period 1st January to 16th
June in 2021 was greater than any other year in the past five years,
versus 2020, which had the fewest listings of the five years.

But what about affordability of
these available houses? That’s a
question that could have many answers – in that it can be answered in a myriad
of ways. We’ve opted for a very simple
one, using price points of affordability for the median household income under
two interest rate scenarios: the current posted rate and a current available
discounted rate, and ignoring down payments because we’re more concerned with
monthly costs in this analysis. We’ve also ignored time – and changes to
mortgage rates and income levels over its course, for illustrative purposes
(horseshoes, hand grenades, and this blog post).
Median Household
Income
|
$67,115
|
30%
|
$20,135
|
Monthly
|
$1,678
|
Mortgage amount @ 1.68% (discount rate)
|
$410,793
|
Mortgage amount @ 4.79% (posted rate)
|
$293,120
|
Mortgage rates from ratehub.ca
Let’s just pause on the one-hundred-and-seventeen-thousand-dollar
difference in what is “affordable” under those two rates. In some areas, you could buy a house for
that. Maybe not for much longer, if
interest rates stay low, but there are rumblings from economists that as
interest rates rise, the “affordability” of houses will contract and what some
fear is a housing bubble, may burst.
The second half of 2021 is yet to
be, so here are the Nova Scotia listing counts annually to 16th
June. A few things jump out: (1) there were more listings in the first
half of 2021 than in the same period of any other year in the past five (we
already knew that from earlier); (2) other than at the outset of the pandemic,
when home was so distinctively the safest place to be and few wanted to let
strangers walk through theirs, 2021 had the fewest listings below the posted
interest rate affordability threshold; and (3) 2021 had the fewest listings
below the discounted interest rate affordability threshold, full stop.

Source: NSAR MLS®, with affordability
thresholds calculated using data from Environics Analytics via Sitewiseweb;
and ratehub.ca.
Back to that mention of localized
median household incomes. In the absence
of sufficient NOAH (Naturally Occurring Affordable Housing: see TDP VP Neil
Lovitt’s excellent blog from earlier this year) in the region,
programs that encourage affordable units in new developments are an important
part of the solution moving forward.
There’s a knife edge on which
balances the costs of development with what is affordable to those who need
non-market housing. It is highlighted by
reaction to a recent announcement of a sizable federal loan on a new apartment
building that will be approximately one-quarter designated affordable units. They’ll be priced in relation to the median
income for the area, which has generated a fair bit of blow back (to be fair: the
perception of how widespread negative reviews of policy are is almost certain
to be skewed, since those who really disagree are far more likely to speak out
against it, while those who agree or are neutral have less incentive to chime
in on the discussion). The issue they
raise is that the local (Halifax) median income referenced is close to $90,000
(as in, one large Costco order close to), so the affordable units could be
priced as high as $2,238, though most are actually going to be less than that
since the agreement includes provision for a further discount to the 30%‑of‑median‑income
standard. The underlying questions in
the flak are really: is median income a reasonable metric on which to base
affordability measures? And what median
should be used? And is there any
relationship between the maximum “affordable unit” price tag and unit size? One-bedroom versus four at $2,200 is a
pretty substantial difference.
There’s a geographic driver of
housing prices, and it costs more to commute less, generally. Maclean’s magazine published an analysis in 2014 that showed a minute of driving time
could save you thousands in housing costs.
Inspired, we devoted a TDP Trends to the topic; with some variation, in general,
the farther you get from the downtown core, the less expensive houses are.

Source: Turner Drake & Partners Ltd. (2015)
This is relevant to a discussion of
housing that is affordable, attainable, and available because cars are
expensive to own and operate. Pushing
affordable housing to the far reaches of the city, where transit options are
limited/nil (and don’t forget that commute times via bus are going to be
longer), is short-sighted at best, and counter-productive at worst. But median incomes are likely higher where
housing prices are higher, whether that’s localized within a city, or the city
median is used in lieu of the provincial one.
Is there a conclusion? Not in terms of a solution. But an acknowledgement of the complexity of
the issue, and the fact that a broad stroke approach to the metrics may provide
little in the way of assisting those who need support to find and keep suitable
housing that fits both the budget and the family structure. That, and the fact that “affordable housing” as defined, is only of
use if it is also attainable and available.

Turner Drake refines high-level,
surface-scratching analyses like the foregoing, into fine-grained, location
specific consulting assignments, including market and non-market housing supply
and demand analyses throughout Atlantic Canada, and Housing Needs Assessments
from coast to coast. To see how we can
provide solutions to your real estate problems, you can reach Alexandra Baird
Allen at (902) 429-1811 or abairdallen@turnerdrake.com.