Affordable housing has many definitions across different sectors. It is an important topic especially for large metropolitan areas such as Toronto. Toronto’s housing market has been booming but the prices have left middle and lower-income residents outpriced. In this article, we will discuss the different definitions of affordability and why it is has become such a contentious issue in Toronto.
Toronto uses the average market rent (AMR) by each unit type to define affordable housing. If the total monthly shelter cost per month falls below the AMR, the housing is considered affordable. However, at the provincial and federal level, affordable housing is defined as shelter costs that equal less than 30% of a household’s income before tax. There are a number of issues when using AMR to define affordability. It is important to remember that AMR is not based on the ability pay, particularly for low and middle-income renters and furthermore that market rent does not always equate to the average asking rent.
A number of complaints of the reliance on AMR in housing plans revolve around the growth of average market rents and average incomes. Rising rents do not match rising income. From 2005 to 2015, the average rent of a one-bedroom apartment in Toronto rose by 20% while the median household income increased by only 5%. If a household is paying more than 30% of its income on housing, its finances will be highly stressed, according to policymakers.
So why has the AMR in Toronto climbed so high while average incomes have barely risen at all? There’s a number of different factors that have contributed to this issue. Toronto’s vacancy rate for rentals has always been quite low. In 2018, the vacancy rate was 1.2%. Lack of supply has driven up the prices of rentals. Additionally, the population has continued to grow in Toronto while the supply of new housing, especially community and social housing, has not been able to keep up with the demand. Already social housing and community housing waitlists are 5-7 years long.
But it’s not just renters that suffer under the lack of affordable housing. Owning a home in Toronto requires a minimum income of $100,000 for an ordinary home. But this number doesn’t factor any other costs such as childcare, travel, school or any other common expenses. According to BlogTo, the average household income required to buy an average-sized house in Toronto is $160,000. This annual salary puts a household within the top 10% earners in Toronto and the top 5% in Canada according to the 2016 Census Date. This amount takes into account monthly expenses such as a car payment, travel expenses and household common expenses. But it only applies to the average house price of $873,100.
All of this sounds daunting but it isn’t hopeless. While the housing market isn’t slowing down, there is opportunity. The market as it is requires creative solutions. The affordability crisis has no simple solution and will take time to fix. Co-ownership is a great way to overcome the affordability crisis and enter the real estate market. Combining multiple incomes allows a group to reach the threshold to purchase a house. While it can get complicated, it is an opportunity for many who would be unable to afford a home on their own.