That’s the situation facing Toronto, where benchmark home prices climbed by just under 24 per cent year-over-year last month.
And that trend has helped to put a house of almost any kind outside the grasp of people who earn just about enough money to rank in the top one per cent of earners, said a draft of a BMO report that was set to be released on Friday.
In the report, BMO chief economist Douglas Porter used the example of a high-earning couple to show just how much the city’s housing market needs “serious” government intervention.
The couple in question, which Porter called Dudley and Darlene Doright, spent years piling away enough income to save for a down payment of $100,000.
The pair had just had a baby, but since the higher-earning spouse had an annual income of $225,000, the other was expected to stay home.
This chart shows how much existing home prices have grown year-over-year across Canada.
BMO Capital markets
This income is enough to mean that the couple would be paying a marginal tax rate of 53.53 per cent — and that’s enough to consider them “rich,” Porter said.
“Given that the Dorights are almost 1%-ers and that they have saved heavily, surely they can afford a decent place to live in Toronto?” Porter asked.
“Not so much, as it turns out.”
This table shows how much house the fictitious Dorights could afford in Toronto.
BMO Capital markets
The maximum home price this couple could afford would be $987,289, Porter said.
That’s not enough to afford an average detached home in Toronto’s 416 area code, where the price runs to $1.57 million.
It’s also not enough to buy an average-priced detached home in the Greater Toronto Area’s (GTA) 905 area code, where the price is $1.11 million.
Even a semi-detached Toronto home, at an average price of $1.08 million, would be out of reach, Porter noted.
The couple could afford a semi-detached home in the 905 region, where the average price is $700,000.
But even there, prices for this type of home went up by 33 per cent in the past year. There aren’t very many of these kinds of houses in the area, either.
“Even people who nearly qualify for the top one per cent of all incomes and will be paying over 53 per cent in personal marginal tax rates … are at best able to afford a semi-detached home on the fringes of Toronto, or maybe a low-end detached home verging on teardown status,” Porter said.
This example provides proof that serious intervention is needed in the Toronto housing market, he said. . . . .