Why Incomes Lag Behind Home Prices (And What Helps)

Let’s play a quick game. Think back to the year 2000. What did a typical house cost? In many Canadian cities, you could buy a decent family home for $150,000 to $200,000. Now fast-forward to today. That same house might cost $800,000 or more in a place like Toronto or Vancouver, or $500,000 in smaller cities. Now think about wages. Have they gone up four or five times since 2000? Not even close. Maybe double, if you’re lucky.

That, in a nutshell, is the affordability crisis. Home prices have sprinted ahead while incomes have jogged. The ratio of home prices to disposable income—basically, how many years of work it takes to buy a house—has skyrocketed. In the 1980s, the average Canadian might save for five or six years to afford a home. Today? In some markets, it’s twenty years or more. Yikes.

So why can’t incomes keep up? There are a few reasons. First, wage growth in Canada has been pretty sluggish since the 2008 recession. Companies got used to keeping raises small. Productivity growth (how much we produce per hour worked) has also been slow. And while the economy has added jobs, many of them are in lower-paying service sectors, not high-wage manufacturing or resource jobs.

Second, housing isn’t just competing with wages anymore—it’s competing with global capital. Investors from around the world see Canadian real estate as a safe place to park money. That pushes prices up beyond what local incomes can support. A family in Calgary might have a great household income of $120,000, but if investors from overseas are bidding on the same houses, that family loses.

Third, low interest rates for over a decade meant people could borrow more. When rates are low, a $500,000 mortgage might have the same monthly payment as a $300,000 mortgage did at higher rates. That allowed prices to rise without immediately strangling monthly budgets. But it also meant people took on more debt. And now that rates have gone up? Ouch.

So how do we fix the income-versus-prices gap? One way is to boost wages—invest in education, training, and high-productivity industries. Another way is to cool prices through supply-side reforms, making homes cheaper to build and buy. The best approach? A bit of both.

We also need to measure affordability properly. Relying on price-to-income ratios is fine, but we should also look at monthly carrying costs (including mortgage rates and property taxes). With rates higher now, some prices are actually starting to dip. That’s a small silver lining.

The bottom line? Closing the income-price gap will take time. But every new home built, every zoning rule reformed, every smart policy passed gets us one step closer. And that’s worth celebrating.