[homeles_ot-l] FW:Home ownership still out of reach of most low, moderate income Canadians

Tue Jul 14 15:26:29 EDT 2009

FYI.  note the annual capital gains subsidy alone will cost taxpayers $11.2
billion in 2009  -- five times the annual funding from the federal
government for subsidized housing programs for low and moderate income
Canadians. 

Lynne Browne

Coordinator, Alliance to End Homelessness (ATEH)

147 Besserer St., 2nd Floor, Ottawa, ON K1N 6A7

613-241-7913, ext. 205

www.endhomelessnessottawa.ca <http://www.endhomelessnessottawa.ca/> 

  _____  

From: hhno-on-owner at povnet.org [mailto:hhno-on-owner at povnet.org] On Behalf
Of Michael Shapcott
Sent: July 14, 2009 1:39 PM
To: Michael Shapcott
Subject: [hhno-on] WI backgrounder: Home ownership still out of reach of
most low, moderate income Canadians

Entry into home ownership markets remains out of financial reach for low,
moderate and even middle-income Canadians, according to a new analysis from
the Wellesley Institute. In its latest semi-annual
<http://www.rbc.com/economics/market/pdf/house.pdf> review of ownership
affordability in Canada, RBC Economics reports that "low mortgage rates and
persisting downward pressure on housing prices will to continue to help
repair affordability". While the RBC's affordability measure is easing
somewhat, the bottom line is that most Canadians who haven't been able to
buy a home still won't be able to afford to buy one. Two-thirds of Canadian
households earn less than the qualifying income for a standard two-storey
home using the RBC scale. The Wellesley Institute is preparing a
comprehensive State of the Nation's Housing report that will examine
affordability in the private rental and ownership markets, along with
government investments in a range of housing policies. 

Affordability in Canada's ownership market is critically important to
overall housing policy. About two-thirds of Canadians live in owned homes
(the percentage is significantly lower in larger urban areas and the
province of Quebec). Successive federal and provincial governments have
encouraged high levels of home ownership through a variety of government
subsidies, mainly tax-based incentives including home ownership savings
plans and the non-taxation of capital gains on principal residence. 

The annual capital gains subsidy alone will cost taxpayers $11.2 billion in
2009, according to the federal department of finance. That is five times the
annual funding from the federal government for subsidized housing programs
for low and moderate income Canadians. While most subsidized housing
programs for lower-income Canadians are income-tested (larger benefits go to
poorer households), the housing subsidies delivered through ownership
incentives are not income-tested (the biggest benefits tend to flow to the
most expensive houses, and that often means the wealthiest households).

The RBC Economics affordability index determines a qualifying income for a
mortgage, then compares that to median household incomes to create its
affordability index. But a significant number of Canadian households have
annual incomes less than the qualifying income set by RBC Economics, and
that excludes them from the home ownership market. The following lists the
type of home and qualifying income (from RBC Economics) and the percentage
of Canadian households which earn less than the qualifying income (from
Statistics Canada):

*         Standard condo $46,200 (41.3% of Canadians have annual household
income below this)

*         Standard townhouse $54,400 (50.5% of Canadians have annual
household income below this)

*         Detached bungalow $67,200 (58.6% of Canadians have annual
household income below this)

*         Standard two-storey $76,200 (65.7% of Canadians have annual
household income below this)

Canadian households that already own a home will likely have accumulated
some equity, which will allow them to trade up to a bigger home. But the RBC
Economics numbers show that, for Canadians seeking to enter the home
ownership market for the first time, qualifying income can be a formidable
barrier.       

Financing the purchase of a new home is complex and there are plenty of
variables that can also become big barriers - starting with the requirement
of a down payment. To keep things simple, RBC Economics assumes that a home
buyer pays a down payment equal to 25% of the purchase price - or $49,775 on
the entry-level condo unit. However, Canada Mortgage and Housing Corporation
reports that the median net worth of renter households is $14,000 - less
than one-third of the amount set out by RBC Economics. 

Mortgage lenders are willing to accept a 5% down payment ($9,955 on an
entry-level condo). But a lower down payment means a bigger mortgage (an
additional $221.51 monthly, according to RBC's on-line mortgage calculator),
and higher monthly payment costs - which further erodes affordability. And a
low down payment means mortgage insurance fees that can amount to $6,000 or
more. The down payment barrier gets larger with the higher purchase price
for different ownership options set out by RBC Economics: $59,450 for a
standard townhouse; $73,450 for a detached bungalow; $82,525 for a standard
two-storey. 

While RBC Economics includes financing costs, property taxes and utilities
in their housing measure, they don't include condominium maintenance fees.
Statistics Canada puts the average annual cost at $2,600. RBC Economics also
leaves out insurance, repairs and other standard household costs (which can
average another $1,000 or more annually). Add these costs to the financing,
taxes and utilities, and home ownership as an affordable option is far out
of reach for low, moderate and even middle-income Canadians. 

-          Michael

***

Michael Shapcott | Director, Affordable Housing and Social Innovation |
Wellesley Institute 

45 Charles St E, Suite 101                    Tel: 416.972.1010 ext 231
Toronto, ON, Canada,  M4Y 1S2           Mobile: 416.605.8316  
E-mail:   michael at wellesleyinstitute.com

www.wellesleyinstitute.com

rigorous research. pragmatic policy solutions. social innovation. community
action.

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