17-06-2025
Canada's household debt crisis: When and how we outpaced Britain and the U.S.
Canada's household debt-to-GDP ratio has remained at or above 100 per cent for a decade – currently the highest among the world's 10 largest economies.
As of late 2024, Britain ranked second at 77 per cent, followed by the United States at 71 per cent. Here's a look at when and why Canada's household debt began to outpace that of its global peers.
Debt in an economy typically falls into three categories: government, corporate and household. While Canada's government debt is significant, it remains lower as a percentage of GDP than in several other major economies.
What sets Canada apart is the scale of its household debt, which increases the country's exposure to interest rate hikes and economic downturns.
Of the roughly $3-trillion in Canadian household debt in the first quarter, nearly 75 per cent is tied to mortgages – underscoring the central role of housing unaffordability in the country's financial vulnerability.
Between 2000 and 2010, Canada's household debt-to-GDP ratio was lower than those of both Britain and the U.S. But since 2011, it has surpassed both, and the gap has continued to widen.
This shift mirrors the pattern discussed in my earlier Globe and Mail article, 'When exactly did Canadian housing become so unaffordable — and who's to blame?'
A key divergence emerged in 2009, when the ratio of average home price to disposable income exceeded nine. Since 2015, that figure has remained above 10 — significantly higher than in Britain or the U.S.
While correlation doesn't necessarily imply causation, the numbers clearly point to housing unaffordability as a major driver of household debt in Canada.
Rising home prices have forced new buyers to take on larger mortgages, but the impact goes beyond that. Homeowners who saw gains in home equity were often refinanced or took out home equity lines of credit — further inflating debt levels.
One major reason for Canada's divergence in housing affordability appears to be monetary policy after 2008. Like the U.S. Federal Reserve, the Bank of Canada cut interest rates to near zero. But unlike the U.S., Canada hadn't experienced a severe housing crash.
As a result, prolonged ultralow rates spurred speculative demand, with buyers using cheap leverage to chase high returns on small down payments. While prolonged low rates may have initiated the divergence from Britain and the U.S., other factors such as restrictive zoning and rapid population growth helped sustain the housing unaffordability.
Canada's household debt crisis is inseparable from its housing affordability problem — driven by prolonged low interest rates, limited supply owing to restrictive zoning, population growth and speculative investment.
Housing unaffordability not only hurts the quality of life for younger generations, but also makes the Canadian economy more vulnerable to future economic shocks because of its tight link with household debt levels.
Hanif Bayat, PhD, is the CEO and founder of a Canadian personal finance platform.
