Ottawa housing affordability gradually eroding: RBC

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A “vibrant” housing market in the nation’s capital continues to push home prices upwards and threatens to put home ownership out of reach for a growing number of residents, according to a recent RBC report.

The financial institution calculated that the typical Ottawa household spent 36.6 per cent of its pre-tax income in the first quarter of 2018 to cover the cost of home ownership, including mortgage payments, property taxes and utilities.

That’s up 0.6 percentage points from the end of 2017 and up 1.4 per cent year over year.

Looking ahead, the Bank of Canada’s widely expected interest rate hikes are likely to further erode affordability, although the increase in mortgage carrying costs could be somewhat offset by rising incomes.

Compared to other Canadian cities, housing in Ottawa remains a relative bargain.

Across the country, the proportion of income required to pay home ownership costs rose 0.4 percentage points to hit 48.4 per cent. Affordability has reached “crisis levels” in Vancouver, where the ratio reached 87.8 per cent, and “poses a tremendous challenge” in Toronto at 74.2 per cent.

Nevertheless, RBC still flagged Ottawa as a market to watch. The 1.2 per cent quarterly increase in home prices – which rose to an average of $407,600, according to RBC – was among the highest in Canada. And while the ratio of housing prices to income still remains close to historical averages, the increase of 0.6 percentage points was the city’s largest in more than a year.

“A gradual erosion of affordability in Ottawa has been a by-product of a vibrant housing market over the past year and a half, supported by a strong economy and positive demographic trends,” RBC said in its report. “A run-up in home resale activity tightened demand-supply (and) put sellers in the driver’s seat for the first time since early 2010.”

A separate report released by the Ottawa Real Estate Board last month showed housing prices hitting an all-time high, with the second-highest number of transactions in a decade.

“The sheer number of home sales that took place in May indicates that inventory is turning over quickly,” OREB president Ralph Shaw said in a statement.

Many of Ottawa’s business leaders perceive Ottawa’s level of housing affordability gives the city a competitive advantage. In the Ottawa Business Growth Survey, three in five respondents said this city’s relatively low housing prices help local firms attract employees.