Canada's housing crunch is like a game of whack-a-mole. Solve one problem, and another pops up somewhere else.
Runaway price growth for single-family homes is a thing of the past in Toronto and Vancouver today, thanks to rising interest rates and tougher mortgage rules. But with prices still high, buyers have turned to other options. Or really the one other option that exists: condos.
"Trouble is, this stronger demand for condos resulted in sharper price gains and affordability erosion," Royal Bank of Canada economists Craig Wright and Robert Hogue wrote in their latest affordability report, released on Thursday.
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Over the past year, RBC's affordability measure for condos worsened three times faster than it did for single-family homes. The gap between renting and owning a condo is the largest it's ever been.
To go from renting a two-bedroom apartment to owning an average condo in Toronto, you need to spend an additional $1,138 per month. In Vancouver, that premium is $1,553, while Montrealers need to spend an additional $904 per month.
That gap grew very rapidly between 2015 and 2018, increasing by 140 per cent in Toronto, 119 per cent in Vancouver and 42 per cent in Montreal.
"And it's not because rent is cheap or became less expensive over that interval," the RBC economists noted. "Rent increased by an average of 6.4 per cent in Vancouver, 4.4 per cent in Toronto and 7.6 per cent in Victoria in the past three years."
All of which means would-be homebuyers will likely be renters for much longer from here on in.
"Expect rental demand to grow rapidly in the years ahead," Wright and Hogue wrote.
Rental housing is not keeping up with demand. A recent study by GWL Realty Advisors estimated Toronto needs to be building 25,000 rental housing units per year to keep up with demand, but has been adding only around 14,000 rental units (condo rentals and purpose-built apartments) per year.
Vancouver needs about 12,000 rental units per year, but is seeing only about 3,400 completed per year.
It's not all bad news. Thanks to declining or flat single-family home prices, overall housing affordability improved slightly in the fourth quarter of 2018 in Toronto and Vancouver, the country's two priciest markets, RBC said.
But affordability "is still at crisis levels in these markets and pressure is intensifying in Montreal," the report said.
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Nationwide, affordability improved slightly, with the cost of owning a home falling to 51.9 per cent of average household pre-tax income, from 52.6 per cent in the previous quarter.
But that "doesn't really change the big picture," the RBC report concludes — that affordability continues to be an acute problem.
Looking forward, the outlook is "somewhat" brighter, RBC said, as interest rates aren't likely to rise much further and may even fall.
"Our forecast for Canada calls for prices to remain unchanged. Current trends even point to likely declines in Vancouver and Alberta markets," Wright and Hogue wrote.
"And with the tight labour market poised to keep household income growing, the stars are aligning for more affordability relief in the period ahead."