Interest-rate myth distracts from Canada’s continuing housing crisis

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Do young people really have it so hard in Canada’s housing market today? I get this question regularly from baby boomers. Don’t today’s lower interest rates offset housing’s much higher sticker price?

It’s time to drive a stake through this myth because it is harmful to our national housing debate. It implies lower interest rates are a solution to affordability when they have often been part of the problem. They allow buyers to bid more for housing and inflate prices higher.

Fifty years of data from Statistics Canada and the Canadian Real Estate Association tell a clear story.

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Let’s start with the interest rates that boomers understandably found so hard to manage. They were brutal in the early 1980s, peaking at about 18 per cent in 1982 for a conventional five-year mortgage. The increase from around 10 per cent just five years earlier made life difficult for many, especially homeowners with variable-rate loans. The work required to cover annual mortgage costs rose from the equivalent of four months of full-time earnings to six months.

While painful, those peak rates did not last. Within five years, rates had fallen back to levels seen in the mid-1970s. They continued declining through the 1990s and, by 2002, fell below 7 per cent, where they have since remained.

That sounds like good news. But mortgage payments are only one of three factors in the affordability equation. Two other measures matter just as much: the work required to save a down payment and the scale of mortgage risk that accompanies buying a home.

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Lower borrowing costs often make both of those measures worse by allowing buyers to qualify for larger loans that further fuel bidding wars. Over the past quarter-century, cheaper credit contributed to skyrocketing home values, especially during the pandemic when rates fell toward 3 per cent.

So while interest rates are much lower today, the three cost pressures associated with home ownership have grown dramatically.

Back in 1982, a typical young person buying an average-priced home needed about five years to save a 20-per-cent down payment, assuming they could set aside 15 per cent of gross earnings. After doing so, they needed a mortgage of roughly $173,000 in today’s dollars to purchase an average home.

A typical young Canadian now needs 13 years to save a comparable down payment. Thereafter, they must take on more than $540,000 in mortgage debt and devote the equivalent of seven months of full-time earnings to pay the annual carrying costs – a full month more than during peak interest rates in the 1980s.

In Ontario and British Columbia, the picture is bleaker. Saving enough for a down payment takes 16 to 18 years. Mortgage debt rises to roughly $609,000 in Ontario and $763,000 in B.C. Annual mortgage costs absorb eight to nine months of work.

These numbers reveal two hard truths. First, the dream that hard work should bring home ownership within reach is far more difficult to achieve today than in 1982 on all three measures of affordability.

Second, the rise in home prices that now hinders younger Canadians generated substantial wealth for homeowners who weathered the interest-rate shock of the early 1980s. After adjusting for inflation, the average Canadian homeowner accumulated roughly $463,000 in additional home equity between 1982 and 2025. In Ontario and British Columbia, the increase exceeded $625,000.

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While unaffordability is greatest in Ontario and B.C., the pattern extends across the country. Even in the Prairies and Newfoundland and Labrador, where home prices rose by a more modest $180,000 to $240,000, younger residents must work four to five additional years to save a down payment than did young people in 1982.

There is one counterpoint in these less expensive regions. At the 1982 interest-rate peak, homeowners in the Prairie provinces and Newfoundland worked between 10 additional days and seven additional weeks to cover principal and interest payments than young buyers entering those markets today. On this measure alone, some boomers briefly had it tougher.

There is no denying that the early 1980s were frightening for many Canadians. Some could not cope as credit became much more expensive.

Today, younger Canadians don’t just face a temporary spike in borrowing costs. They confront a housing system in which the work required to save for, buy and carry a mortgage is generally far greater than the peak hardship faced by boomers in 1982.

Imagine enduring that level of fear and uncertainty not for a few difficult years, but as a defining feature of your housing future. It’s no wonder so many young people feel shut out of the housing market today.

Dr. Paul Kershaw is a policy professor at UBC and founder of Generation Squeeze, Canada’s leading voice for generational fairness. You can follow Gen Squeeze on X, Facebook, Bluesky, and Instagram, as well as subscribe to Paul’s Hard Truths podcast.