A red, white, and black flag with a white background.

Understanding Housing Price to Income Ratio Like a Pro


What Exactly is the Housing Price to Income Ratio (HP2IR)?

The house price-to-income ratio, sometimes colloquially referred to as the income ratio, is a fundamental measure of home price valuation.

The ratio measures the development of housing affordability and is calculated by dividing nominal house prices by nominal disposable median income per head.

When the ratio rises, real estate prices become more costly relative to average incomes. If the ratio falls, home prices are becoming more affordable.  It’s a methodology to show housing affordability, and by extension how accessible home ownership is to each county’s citizens.

How is it Calculated?

Comparing single data point national statistics per county is not comparing apples to apples, per se. The Organization for Economic Co-operation and Development (OECD) created an index.

In Canada, you’d have to have lived under a rock to not know that housing prices have been skyrocketing over recent years; it has been a consistent topic of conversation in the public and a major campaign commitment in local, provincial, and national elections across the country.

Examining the Ratio from a Canadian Perspective

According the ratio index reached a shocking 141.9 in Q4 2021.

This translates to real estate prices growing at a rate 41.9% faster than incomes since 2015, resulting in an overvalued housing market. Even further back, what were once nominal house prices, have more than doubled the pace of income growth since 2000.

The only member nation of the OECD with a greater ratio than Canada is the Netherlands, which rose to 148.3 in Q4 2021.

However, one important consideration is that Canada is still confronted with a more challenging situation given that the Netherlands is a small economy and is therefore more prone to sharp fluctuations. In Canada, we’d expect to see more modest shifts than history has given us.

Why is Home Ownership Such a Big Deal?

Why do economists or government organizations such as the Federal Reserve Bank in the U.S. and the Bank of Canada in the north care about who owns a home?

In reviewing the national statistics, a county where the vast majority of its citizens own their homes is an indication of a county with a healthy economic outlook. The reasoning behind this is that the permanence associated with home ownership means that a nation’s citizens can afford the cost of living. In so doing, they will contribute regularly to the health and wealth of that county’s economy through their employment, be it production, service, or self-employed; through the regular payment for goods and services; and through tax revenue that is then turned into government programming, to name a few ways.

There is a direct correlation between homeownership and the economic stability of a country. Comparisons are made between nations to evaluate access to real estate markets and the efficacy of housing policies in their attempt to address affordability.

How Much is the Average Household Income in Canada?

Overall, persons and families saw a 3% decrease in income – from $57,600 to $55,700 per individual on average as COVID-19 restrictions had a dramatic impact on the Canadian economy, according to The average household income is $75,452.

It’s important to remember that average household income is not the same as net worth. A person or family’s net worth includes the value of their assets regardless of that item’s liquidity whereas the household income just looks at the accumulated amount of money brought into the home for a defined period.

What Percentage of Income Does the Average Canadian Spend on Housing?

It may be helpful to chart a benchmark for our country; The average cost of living in Canada chart shows this as $2611 per month for a single individual. For families of four, the necessary monthly income according to the chart for the household is $5,230 monthly.

Average Canadian Spend on Housing
Average Canadian Spend on Housing

According to, the provincial cost of living chart (working from the east coast to the west coast) breakdown is as follows:

  • Newfoundland: $2,845
  • New Brunswick: $2,918
  • Nova Scotia: $3,700
  • Quebec: $2,626
  • Manitoba: $3,324
  • Saskatchewan: $3,091
  • Alberta: $4,115
  • British Columbia: $4, 557


The Canadian Mortgage and Housing Corp. (otherwise known as CMHC) considers the measure of housing affordability as 30 percent or less of a household or person’s average income going toward rent.

The indexed value indicated that nationwide, the percentage of Canadians that are spending above that is 40 percent. It might be of interest to note when it comes to the measure of people under 30 years of age in Canada, 44 percent are paying more than 30 percent of their incomes on rent.

Is housing affordable in Canada?

Properties purchased in the larger urban centres had the highest price-to-income ratios. When assessing price-to-income ratios, Statistics Canada built out a data chart using the 2015 set (home prices and average income for the specified area) as a base year (otherwise known as the benchmark) when the index was 100.

The data in the chart shows that Canada’s index score in the first quarter of the 2022 year climbed to 150.5, which means that Canadian home price growth has outpaced the median income or the average income data with an eye to income growth by almost 51 percent since 2015. The real-world reality of Statistics Canada’s data set in Canada is that these households or folks may have to dip into savings, or worse still, the demand on their income is too great for them to sock away money for savings.

The Statistics Canada data shows that these young adults are disproportionately impacted by their price-to-income ratio; this was never more present than across most markets as the average home price skyrocketed.

This inflation in the sale price leaves this client profile with a nominal disposable income if any disposable income at all. It’s not a great position to be in when we’re talking about home prices or property sales in a seller’s market (although some communities are moving to a balance or a buyer’s market), spiking interest rates, and higher house prices. When we drill down on the data to its most basic level, the issue isn’t home prices, population growth in a particular area, income ratio, average incomes, or even high-interest rates; It’s an issue of equity. First-time home buyers The reality is that once the market has done what it does with home price sales, buyers can no longer compete with the inflated prices.

Creative Solutions to a Complicated Problem

A trend that we’re seeing in the market as real estate prices rise, is millennials are finding it increasingly difficult to purchase a house with their income, often two good incomes even with a mortgage. The truth of the matter is to keep pace with the house price market, they just need more money.

As seen in other countries also experiencing the inflated home price trend, younger generations are turning to their parents to close the house-price-to-income gap when buying a house by having them co-sign for a larger mortgage. While this leverages the fact that older Canadians typically have a much better ratio, and way more equity in their house (due to the home price when they purchased it years, often decades, ago and the current market value home price), they now have an interest in that house or property.  But they’re also liable for it all; principal (house price minus downpayment) and interest (compounded using either a fixed or variable interest rate). Just a quick note, with a variable mortgage, as interest rates rise, so will your mortgage payments even though the house price and average income remain relatively consistent.

Lenders may seek remediation not for the house price but for the debt on the property. This can be sizeable when interest rates are combined with house prices, even if we’re talking about nominal house prices. When mortgage payments on a property are missed by buyers or only a part is paid, data shows that by going after the parents of the buyers, more than half get some of their debt recouped. This means that if their child defaults on the mortgage and the bank tries to take the property, the lender may try to come after the equity in the parents’ house.

Younger buyers with too high of an income ratio or who have unconventional incomes may also seek partial or full down payment support to combat higher housing prices.

The above shows the cost of living by the province in Canada, so we thought that we ought to turn our minds to the real estate market, including the average house prices, given the measure of their average income.

The intersection between population and housing is a poignant one; population variations lead to changing demand for housing, including the quest for an affordable home price. Population growth, and particularly an increase in the number of households, lead to a growth in housing demand.

On the flip side, a population decline might lead to a decrease in housing demand. This will, however, only happen in the long run, after not only the number of individuals but also the number of households has started to decrease. The challenge of population decline is greatest in remote rural areas and in areas with lower-quality housing because it adds a certain level of complexity to areas that are already sparsely populated when compared to their urban counterparts.

At the same time, the supply of housing and the price per unit impact the opportunities for population growth through migration. Adequate housing supply at a competitive market price might attract migrants or influence their choice of residential location.

BC: Breathtaking and Costly

According to the Canadian Real Estate Association (CREA), in Vancouver, British Columbia, the median sale price for residential properties is currently $1,180,500. When we expand the radius a bit beyond Vancouver in British Columbia proper to include the suburbs (also known as the greater Vancouver) in British Columbia’s stats, the benchmark price of an attached home is $1,069,100. It’s safe to say and the data shows that British Columbia has the highest house prices in the country and the second highest house prices on the continent (the average house price in San Francisco is $1,360,000) we won’t be looking at nominal house prices in this area for quite some time. By extension, it’s fair to anticipate a poor price-to-income ratio.

When we look at data to chart the movement within the provinces and inter-provincially, the data indicates that more than ever, younger generations are moving to suburban and rural communities as the higher home prices in the more urban communities mean that they are priced right out of those markets.

The data leads us to the fact that there are some communities across the nation with higher nominal house prices and, thus, likely more achievable income ratios. Chart a course for the following neighbourhoods :

  • Thetford Mines, Quebec-Cheapest house we found: $65,000
    Average salary: $63,214 (source:
  • Saguenay, Quebec-Cheapest house found: $89,500
    Average salary: $63,214 (source:
  • Moose Jaw, Saskatchewan-Cheapest house found: $62,900
    Average salary: $61,571 (source:
  • Regina, Saskatchewan Cheapest house found: $95,000
    Average salary: $65,600 (source:
  • St. John’s, Newfoundland-Cheapest house found: $69,900
    Average salary: $63,396 (source:
  • Surrey, British Columbia-Cheapest house found: $129,000
    Average salary: $73,006 (source:
  • New Glasgow, Nova Scotia-Cheapest house found: $80,000
    Average salary: $60,222 (source:
  • Red Deer, Alberta-Cheapest house found: $152,000
    Average salary: $67,407 (source:
  • Conception Bay, Newfoundland-Cheapest house found: $149,900
    Average salary: $61,950 (source:


In conclusion

In the short term, understanding the income ratio and how it applies to your specific situation just may make the difference between your offer being the first runner-up or your offer is accepted, and first-time home buyers really need all of the help that they can get. In looking at things long term, understanding the income ratio allows you to be strategic not only about where you live. It gives you the inside scoop on how to prepare your financials before you sit down with a lender. This will allow you to improve the health of your wealth before you ever put in an offer.

About the Author

Heather McDowell is a mother and a REALTOR®. Heather has spent most of her real estate career selling residential real estate, and its leasing and has dealt with the additional complexities of the cottage, timeshare and rural properties, and condominiums. She has dabbled in new construction and is expanding her portfolio to include commercial sales and leasing. Heather is also a dedicated volunteer for both the local women’s shelter and a national hospice organization and is an emerging playwright. Heather describes her focus as diversifying real estate content that not only addresses national matters but explores those issues unique to each province and territory. You can contact Heather at or find her on socials at: Facebook – LinkedIn – Instagram –  

Post a Comment

Related Articles

The Canada Mortgage and Housing Corporation (CMHC) has announced the reopening of the Housing Accelerator Fund (HAF) application window for previous applicants who were not...

When looking at the housing supply and affordability crisis that is presently plaguing Canada, an idiom coined by popular cartoon handyman Bob the Builder quickly...

Most Trending News

The Canada Mortgage and Housing Corporation (CMHC) has announced the reopening of the Housing Accelerator Fund (HAF) application window for previous applicants who were not...

When looking at the housing supply and affordability crisis that is presently plaguing Canada, an idiom coined by popular cartoon handyman Bob the Builder quickly...

A June 2024 Edge Realty Analytics report has highlighted some notable shifts in Canadian building permit and construction trends. In a surprising turn of events,...