As housing costs soar, some financial analysts advise scrapping the 30% rule

4 min read

If you have ever applied for social housing or a mortgage, or even tried to figure out your budget, you probably have come across this figure: 30 per cent.

That’s the often-touted maximum percentage of your income that you should spend on a home. But in an age where the average one-bedroom apartment in Vancouver rents for $2,787 a month (new window)is that number still realistic?

It depends on who you’re asking. But generally, the answer is: sort of.

The benchmark doesn’t apply anymore, said Credit Canada CEO Bruce Sellery by email.

Housing costs have increased dramatically, everywhere. And so individuals need to look at their own specific situation and determine how best to allocate limited resources.

‘A useful benchmark’

The Canadian Mortgage and Housing Corporation began adopting the rule in 1986.

The 30 per cent threshold continues to be a useful benchmark to consistently measure housing affordability in Canada and other parts of the world, including in the United States and Australia, CMHC said in an e-mail.

However, the corporation says it introduced the “housing thorny concept (new window)” in 2020 to admit that, for some households, keeping housing costs up to 30 per cent of their budget is still not enough to cover all their essential needs.

Crunching of the numbers

Let’s take a minute to look at some numbers.

If you were single and living on your own in Vancouver, you would need a salary of $9,000 a month, or $108,000 a year, to pay for an average one-bedroom and keep it to 30 per cent of your income before taxes.

Financial analysts say households with different needs would have to spend more or less money on different budget items.  (Ben Nelms/CBC)

Financial analysts say households with different needs would have to spend more or less money on different budget items.

Photo: (Ben Nelms/CBC)

Meanwhile, the average income for those 15 and older, according to Statistics Canada, is $62,250. That number is a bit irrelevant, because not everyone needs or wants to rent a one-bedroom apartment, but it gives a sense of discrepancy.

So what should people in middle- and lower-income brackets do to help prevent spending too much on housing?

Not always attainable

The answer, according to finance specialists like Anne Arbor, director of strategic partnerships and education at the Credit Counseling Society, is to ditch the 30 per cent rule.

It is a really difficult number and has been for quite some time, to be honest, Arbor said.

In today’s age of inflation and … very high housing costs, it isn’t always attainable.

Arbor says the 30 per cent rule used to be the 25 per cent rule when she first studied economics a thousand years ago. And she wouldn’t be surprised if it continued to creep higher.

‘We all have different needs’

Instead, Arbor suggests people look at their budget as a whole and determine what their needs and obligations are — a task that would likely not look the same for all households.

It’s easy to focus on just one number. But you’ve got to take a look at everything in balance, she said.

We all have different needs. We all have different priorities and different obligations.

Inflation has also driven up costs for other key items such as food, as well as housing.

Inflation has also driven up costs for other key items such as food, as well as housing.

Photo: iStock / sergeyryzhov

Meanwhile, the average income for those 15 and older, according to Statistics Canada, is $62,250. That number is a bit irrelevant, because not everyone needs or wants to rent a one-bedroom apartment, but it gives a sense of discrepancy.

So what should people in middle- and lower-income brackets do to help prevent spending too much on housing?

Not always attainable

The answer, according to finance specialists like Anne Arbor, director of strategic partnerships and education at the Credit Counseling Society, is to ditch the 30 per cent rule.

It is a really difficult number and has been for quite some time, to be honest, Arbor said.

In today’s age of inflation and … very high housing costs, it isn’t always attainable.

Arbor says the 30 per cent rule used to be the 25 per cent rule when she first studied economics a thousand years ago. And she wouldn’t be surprised if it continued to creep higher.

‘We all have different needs’

Instead, Arbor suggests people look at their budget as a whole and determine what their needs and obligations are — a task that would likely not look the same for all households.

It’s easy to focus on just one number. But you’ve got to take a look at everything in balance, she said.

We all have different needs. We all have different priorities and different obligations.

Maryse Zeidler (new window) · CBC News

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