Can families afford Toronto anymore?

Every few months an article will come out saying how much a household needs to earn to afford the average home in Toronto.  These articles are always interesting because the incomes needed to afford the average home seem low when you factor in the additional costs any household would be faced with.  In particular, do these income estimates account for any of the costs associated with having a family in the city?  This article will attempt to understand the costs that families face in this city and compare that to the level of income that would be needed to make ends meet.

In September, Zoocasa estimated that to afford the average home in Toronto, which was quoted at $785,223, a household needed an income of $107,111.  We will use that number as our comparison to understand how much more a couple or individual with children would need to make to at least break even.

We will start by calculating the monthly payment of the mortgage.  For simplicity, we will calculate assuming a 20% down payment was made (don’t forget the provincial and municipal land transfer taxes and legal fees on top of that), as this will also enable a 30-year mortgage term.  Given the expenses of family life, it seems safe to assume this would be a popular choice for families with a new mortgage.  With a competitive rate of 3.35%, the monthly mortgage payment would be $2,760.44.  That mortgage rate may be a distant memory with the recent Bank of Canada rate increases, but let’s be optimistic for families.

If the situation dictates that a child or children need to go to daycare, that will add a significant total on the household’s monthly expenses.  Leveraging the Canadian Centre for Policy Alternatives numbers, the average monthly cost of daycare for an in infant in Toronto is $1,758, for a toddler is $1,354 and the cost for a pre-schooler is $1,212.  Even after the daycare years, before and after school care is often required by families to be able to put in a minimum 8-hour day at work.  These prices can range depending on the age of the child but estimating $500-600 per month is a safe bet.

The next great expense is the every day essentials.  Grocery bills go up, diapers are needed and trips to Shoppers or Rexall become wildly expensive affairs.  Estimating $800 to $1,200 a month depending on the number of children and their age is realistic.

Transportation becomes more of an issue once kids are involved.  Having a car is not a necessity but it sure can be useful.  At minimum, a TTC commute is likely required as it is challenging to live within walking distance of most of the city’s commercial zones.  Monthly Presto use becomes the base spend and then it is a matter of whether you have a car lease or insurance expense on top of that.  Having a lease plus car insurance will easily run another $500 a month.

Factoring in everything discussed so far, the following table shows the basic expenses for a family that has a child or two younger than school age – junior kindergarten.  It compares these total expenses against the after-tax income of a household making $107,111 (assuming duel income), as estimated as the requirement to afford the average home earlier in this post.

Expenses One child Two children
Mortgage $2,760 $2,760
Property tax, utilities, insurance $650 $650
Daycare $1,758 $2,566
Essentials $800 $1,000
Transportation $250 – $750 $250 – $750
Total $6,218 – $6,718 $7,276 – $7,726
After Tax Income of $107,111 $6,822 $6,822
Remainder $104 – $604 $-404 – $-904

The numbers above show the unavoidable basic expenses that families face (and include a favourable mortgage); however, they do not yet even factor other expenditures that have become almost as mandatory.  New clothes, internet and phone plans are hundreds of dollars a month that are hard to avoid.  Coffee or lunch at work is another area where people can easily spend significant amounts of money throughout the year.  Ideally, families would be taking advantage of the city’s entertainment options or possibly putting away some money for retirement as well.  Finally, we have not included condo maintenance fees or household repairs, which are absolutely a cost of ownership and are at least a few thousand dollars a year.  For the family with one child, they may be able to stretch their remaining dollars to cover these expenses if they forgo a car; however, a family with two kids has already more than exhausted their budget.  Other than additional debt, what options do they have?

This article is not designed to show the hardship of a household making $107,111 per year, although we can see they would clearly be strained.  Sadly, these numbers would suggest a household income of $120,000 or more might be required.  The real discussion should center around how households making less are expected to raise a family in Toronto?  If the belief is that prices will only continue to rise, then we should not be expecting families to continue to seek out homes in our city.  If we are pushing high income households to their breaking point, it is terrible to think how the average family is managing in Toronto.

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