Housing affordability is one more thing the COVID-19 pandemic is making worse, and not just in Toronto and Vancouver

As the pandemic worsened last month, the housing market put on a display of chunky double-digit price increases in cities across the country.

The gains are staggering in dollar terms. Average resale prices in Chilliwack, B.C., jumped by $110,409 to $616,857 over the October, 2019, level. In Hamilton, prices soared $103,600 to $727,100, and in Sherbrooke prices rose $88,110 to $336,613.

What’s happening in cities all over the country is an acceleration of a long-standing trend of house prices rising faster than incomes. The pandemic has simultaneously made people more motivated to buy houses and reduced the chances of incomes rising enough to give buyers more purchasing power. Housing affordability in high-demand communities is in real trouble.

Wait, the outlook gets even more challenging for young adults who hope to get into the market. As noted in a report this week from CIBC Economics, the amount of money safely parked in bank deposits is $90-billion higher than what would normally be expected. CIBC expects this money, accumulated by well-off households as a result of economic shutdowns in the pandemic, to start flowing back into the economy in the spring and summer.

Might some of this money find its way into the housing market in the form of down payments from buyers and parental gifts to adult children buying homes? “The short answer is yes,” Benjamin Tal, deputy chief economist at CIBC World Markets, said by e-mail. “It’s impossible to know how much, but I think it’s fair to say that part of it will go to real estate.”

Stockpiled cash may help push housing prices higher – that’s one problem for young buyers. Another is that they’re not accumulating cash at the same rate as the rest of the population. Remember, young adults and people with low incomes have felt the worst of the pandemic’s effect on the economy.

Struggling to afford a home used to be mainly a feature of life in Vancouver, Toronto and surrounding areas. Those markets are still strong – there’s no exodus from big cities. But the pandemic has opened buyers' minds like never before to living in more distant communities offering extra value for the dollar.

This isn’t just happening in such places as Chilliwack, Hamilton and Sherbrooke, which are a one- to two-hour drive from Vancouver, Toronto and Montreal, respectively. The average resale price in Kingston, halfway between Ottawa and Toronto, surged 24.5 per cent in October to $482,294. That’s a $95,031 increase over a 12-month period featuring a lot of disruption to the Canadian and global economies. Ottawa itself is a real estate hot spot – prices in October jumped 22.4 per cent to $536,400, which means a year-over-year gain of $98,300.

There were signs in the October housing numbers that the pace of growth in prices and sales is easing. But without a sharp correction in prices, rising incomes are the best hope for young adults who want to buy houses.

Thanks to government support programs such as the Canadian Emergency Response Benefit, incomes were up earlier this year compared with the same period of 2019. Many people lost their income entirely or saw it slashed, but the total amount of income on a national basis was higher.

Future prospects for income stability, never mind growth, aren’t great if you’re trying to keep pace with gains in home prices. CERB has been folded into employment insurance, so the jobless still have a degree of support. But across the economy, employers are going to be calibrating pay increases in the year ahead to their financial health. Expect pay increases to be on the lean side.

No big adjustment is required for this outlook. For the 10 years after the previous recession, pay increases were so modest that people barely came out ahead after inflation.

Statistics Canada data covering people at the age of 24 to 54 shows that median incomes increased by an average annual 0.6 per cent from 2008 to 2018 on an after-inflation basis. In the 25 to 34 group, incomes were pretty much flat after accounting for inflation.

Early in the pandemic, it seemed possible that housing would take a hit like the broader economy and perhaps open a window of affordability for young buyers. It now looks like affordability is one more thing the pandemic made worse.