New Search X

RBC Housing Affordability Measures 101

Posted by Jim Sparrow on Monday, November 28th, 2011 at 3:29pm.

RBC Housing Affordability Measures - November 2011Lately the news has been flooded with articles about the affordable housing market in Alberta. All this excitement was the result of the release of the RBC November report on Housing Trends & Affordability.

You may have heard Alberta had the lowest affordability measures of all the provinces in Canada:

  • Detached bungalow: 32.8%
  • Standard two-storey: 36.0%
  • Standard condominium: 21.3%

Calgary housing affordability was slightly higher than the provincial numbers but "continues to be one of the most affordable major cities in the country": 

  • Detached Calgary bungalow: 37.6%
  • Standard Calgary two-storey: 38.2%
  • Standard Calgary condominium: 23.2%

This sounds great, but what exactly does it all mean? Where do these numbers come from?

What is the "Housing Affordability Index"?

The Housing Affordability Index is the percentage of a family's gross income that is needed to service the cost of owning a particular property in a certain area of the country. The lower the percentage (%), the more affordable the market is.

In Canada, the three "standard" types of properties the index tracks are: 

  1. Condo (refers to a condominium with an interior size of 900 square feet)
  2. Bungalow (refers to a detached bungalow with an interior size of 1,200 square feet)
  3. Standard 2-storey (refers to a detached 2-storey home with an interior size of 1,500 square feet) 

Housing affordability measures are calculated based on several criteria:

Housing Affordability Formula

First, the bank determines how much gross income will be required to meet a regular mortgage payment (principal and interest), property taxes, and utilities. This number varies slightly depending on the type of house - Detached bungalow, standard two-storey, or standard condo (doesn't include condo fees).

This is based on the buyer making a minimum 25% down payment, and assuming a 25-year mortgage at a five-year fixed rate. All these factors are estimated quarterly for each province.

The measure is based on gross household income, not including property-tax credits.

One other important factor is "Qualifying Income." Generally a maximum 32% of a buyer's gross annual income should be applied to mortgage expenses.

Once these figures are taken into account, you have a Housing Affordability Measure.

For instance:

In Alberta, based on a detached bungalow, it's estimated that mortgage payments, taxes, utilities, and taxes total about 32.8% of an average household's pre-tax earnings, and the Qualifying Income is $75,900.

That same house in British Columbia would have a 75.1% affordability measure and a Qualifying Income of $128,600.

Some other great news that came out of the Royal Bank report was the expectation that the Bank of Canada will keep interest rates at their present low levels until mid 2012, with only gradual increases in the following months. This, combined with moderate gains in property values translates into good news for real estate in Calgary, Alberta and the rest of the country.


We'd be happy to discuss this or answer any questions on Calgary real estate - please feel free to contact me below, or if you'd like to chat with me page me directly through Royal LePage Solutions @ 403-252-5900.

If you're looking to sell or buy, do not hesitate to contact us.

We are prepared to work hard ensuring that your needs are met and that the result is more than you were hoping for. Nothing gives us more pleasure than your success and being with you through major life changes.

9 Responses to "RBC Housing Affordability Measures 101 "

Cal Carter @ Gulf Shores Condos wrote: Thanks for the info Jim! Is RBC the Royal Bank of Canada? They have been in our community a couple years and I have a few friends working for them. I hope that they will continue their sound lending practices.

Posted on Tuesday, November 29th, 2011 at 7:22am.

Jim wrote: Cal - yes sir, RBC = Royal Bank, the largest of the 'big 5' institutions that dominate the Canadian banking industry. Our banks, unlike those in the US, are highly regulated, which is one of the reasons the Canadian real estate market has avoided the collapse many regions in the US have seen. RBC is an extremely well run company ..... perhaps you might want to invest in them :)

Posted on Tuesday, November 29th, 2011 at 7:39am.

Kerri Demski wrote: Nice summary Jim! Our greatest and most vocal Canadian real estate cynic purchased an investment property in Alberta a few months back, on the down low of course. Although I don't know exactly where, I would venture to guess that it was in Calgary. As much as I don't like to put a lot of weight in his ranting, I believe his action speaks volumes for your market!

Posted on Tuesday, November 29th, 2011 at 11:06am.

Jim Sparrow wrote: Thanks Kerri! Regarding the most vocal Canadian real estate cynic ..... does his (her) name rhyme with "Darth"?

Posted on Tuesday, November 29th, 2011 at 11:12am.

Kerri Demski wrote: Why yes, it does. And that's a great rhyme-name for him (her)!

Posted on Tuesday, November 29th, 2011 at 11:36am.

Jolenta Averill wrote: Hey Jim, Love the affordability index and wish I knew of an equivalent for my market. It really puts the affordability for any given city's housing in perspective, something I think is crucial to understand given the widely divergent housing prices we are seeing across the country. Great job bringing this important measure to light for your readers!

Posted on Tuesday, November 29th, 2011 at 12:11pm.

Jim Sparrow wrote: Thanks for the comment(s) Jolenta. NAR does in fact publish a US HAI, although they don't use the same methodology as Canada:

Posted on Tuesday, November 29th, 2011 at 12:29pm.

Paula Henry wrote: 32% housing costs are great numbers. What percent of your population can afford the average home spending 32% of their income on housing? I also wonder is 25% down and 25 year mortgages normal for Canada?

Posted on Friday, December 16th, 2011 at 11:38pm.

Jim Sparrow wrote: Great questions Paula! The answer to your 1st question is: I honestly don't know - I suspect the number might be as high as +/- 50%. Calgary has become the energy capital of Canada, with an enormous number of highly educated & skilled professionals living + working in the city. Calgary's median family income is nearly $100,000 per year (highest in the country & among the highest of any city in North America). As a result a large number of Calgary homes are far beyond what would be considered "average". Mortgages in Canada come in all shapes & sizes - there is no standard product (most lenders do NOT offer a 25 year fixed mortgage). The "average" buyer likely puts between 10-25% down; a minimum 5% down is required. Many of my buyers are high net-worth individuals who don't require any financing (although with interest rates so low there's a trend for these individuals to finance their homes with a personal home line of credit (HLOC).

Posted on Saturday, December 17th, 2011 at 8:25am.

Leave a Comment