It is unlikely that housing affordability will return to Toronto anytime soon, even in the event of a recession comparable to one of the worst economic contractions in the province's history, according to a new report from senior economists at Desjardins.

The report outlines three possible outcomes for the future of the housing market in the city, including the worst-case scenario, which looks at an "Ontario-style recession from the 1990s" that would see the average home value decline by 16 percent by the end of next year and 30 percent by the end of 2025.

The report notes that "even if this unlikely outcome were to materialize within the next three years, it would only bring Toronto housing prices back to per capita income ratios to levels seen in late 2015 that are still stretched."

It added, "After years of being priced out of the market, many potential homebuyers in Toronto now feel that a looming recession is on the horizon. However, even in the worst economic scenarios, we do not see a return of affordability to Canada’s largest city anytime soon."

The report, written by Jimmy Jean, Chief Economist and Strategist at the financial group, and Chief Economist Marc Desormeaux, explains that a recession of this magnitude would inflict massive economic losses on the province.

"Such a significant drop in prices is likely to come at enormous economic and social costs. Compared to our baseline forecasts for Ontario, a recession like the one that occurred in the 1990s would lead to a decline of over $35 billion in labor income and nearly half a million total job losses by the fourth quarter of 2025."

In the "most optimistic scenario," with continued strong population growth and supply-side pressure leading to a limited number of new listings, Toronto could see prices surpass the peak levels reached in February 2022 by early 2025.

"While this would be great news for property owners, it is the least positive of our scenarios for potential buyers. The report continues that the price-to-income ratio for each working-age person will exceed its peak during the pandemic by the middle of the decade."

In the most likely scenario, home prices in Toronto will hit the bottom by the end of 2024, reaching about five percent below July 2023 levels.

"In addition to a smaller percentage drop in per capita income, we expect a trajectory for home values that would slightly improve affordability relative to current levels. Unfortunately, this would only bring us back to early 2021 levels for the price-to-available income ratio for individuals over 15 years old."

The authors of the report say that the analysis highlights the "very tough starting position" facing first-time homebuyers and policymakers.

"While these findings may be startling, we have always known that restoring housing affordability would be a lengthy process. Our analysis reinforces this view, as well as the need for the successful implementation of ambitious plans to enhance the housing supply."

"In addition to the fundamental issues around human rights raised by excessive affordability, our work has previously highlighted the speed at which young people are leaving Ontario, particularly the Greater Toronto Area, in search of cheaper housing. Thus, despite near-record population growth, Ontario ultimately risks losing the entrepreneurship and economic dynamism that youth bring."

The authors stated that the discussion around housing affordability in Canada needs a "change in tone."

"All levels of government and the private sector must work together to tackle the enormous challenge of significantly increasing the construction of new homes. The report concludes that Toronto’s—and indeed Canada’s—status as a welcoming and prosperous place to live depends on this."