National Bank of Canada: Is Canada’s Household Leverage Really too High?

A favourite sticking point for some housing market critics is the idea of Canada’s unsustainably high household debt. It’s common for some people to believe the country’s debt-to-disposable-income ratio is a great source of vulnerability for our economy and a predictor of more troubles to come.

According to a recent report from the National Bank of Canada however, when controlled for fundamentals and compared to international statistics, Canada’s ratio of household debt to disposable income is actually fairly conservative. Here’s what the report found:

International Comparison

Overall, Canada’s economy continues to do well, surpassing that of all other G7 economies since 2007. In the past, the negative perception of the Canadian financial outlook has had been attributed to sharply increasing home prices, especially in some of Canada’s largest cities. However, even despite this rise, the price of a comparably-sized downtown apartment in cities like Vancouver and Toronto is not that extreme by international standards. In fact, almost a dozen international cities sit higher on the list for comparable home prices, including Hong Kong, San Francisco, Boston and New York.

On a similar note, Canada’s ratio of debt to household income sits at a record high for us, but is still not as high as many OECD countries, including Norway, the Netherlands and Denmark.

Education and Employment

It’s also worth noting that Canada’s prime-age workforce (generally those between the ages of 25 and 54, the demographic most likely to buy homes) is enjoying higher rates of employment. Last month, the number of employed people in that demographic hit a new record in Canada.

There is also an association between household debt and education. In Canada, more than 60% of residents between the ages of 25 and 34 have post-secondary education, the highest proportion in the OECD. An educated workforce can support a higher debt.


The growth of Canada’s prime-age demographic has been the fastest in the OECD, with 70% of that growth being attributed to immigration. More than 20% of our population is foreign-born, and more than 60% of our annual immigration population falls under the “economic category admissions,” meaning they’re selected for their ability to become “economically established.” Compare this to only 13% for the United States and 4% for Germany. As such, Canada has the highest inflow of workforce-ready immigrants, meaning individuals that are the most likely to find steady jobs, form households and, ultimately, become homeowners. Our immigration policy is key to a thriving labour market.

Sound Fiscal Management

The stronger a country’s public finances, the more confidence homeowners have. Canada’s net debt and fiscal balances are lower than many other OECD countries. Based on the National Bank’s prediction chart – which compared with actual ratios of debt and disposable income ratios in OECD countries – Canadian household leverage relative to fundamentals is relatively conservative.

What does this mean?

Despite our debt-to-disposable-income ratios being at a record high, there is a lot more to the picture than just these figures. After controlling for factors like employment, population growth, education and welfare solidity, Canada’s debt ratio is actually fairly conservative compared to many international countries.

View Report