Housing affordability in Canada's most expensive market — Vancouver — is at "crisis levels," according to a new study, which says the re-acceleration of home prices, along with higher interest rates, are "slamming" ownership costs again.

The cost of buying a home in Vancouver reached its highest levels on record in the first quarter of this year, according to the RBC Housing Affordability Measures study released on Tuesday.

Vancouver residents would need nearly 88 per cent of their household income to buy a home, while Toronto residents would need more than 74 per cent of their income to cover the cost, the study said.

That compares with the Canadian average of about 48 per cent of household income and less than 44 per cent in other major cities like Montreal and Calgary.

"Affordability is a major issue in two of Canada's largest markets. It's at crisis levels in Vancouver and poses a tremendous challenge for many Toronto-area buyers despite improving in the past two quarters," said Robert Hogue, senior economist at RBC Economic Research, in the report.

The No. 1 issue is really supply, and nobody is dealing with it. In fact, it's getting worse. - Benjamin Tal

"Because they apply from coast to coast, higher interest rates pressured affordability in all markets across Canada. In Vancouver, though, a re-acceleration of home prices in the past three quarters amplified the effect," he added.

"These factors returned affordability to a sharply deteriorating track after a short period of reprieve in late-2016 and early-2017."

Despite a series of measures introduced by regulators and the government over the past two years in an attempt to rein in property prices in Vancouver, the benchmark price for a home in Greater Vancouver rose to a record $1,094,000 in May, even as sales fell 35 per cent from a year ago, according to the Real Estate Board of Greater Vancouver.

Meanwhile, the Bank of Canada has raised interest rates three times since July last year and is widely expected to raise rates again at its policy meeting next week Wednesday.

'Not enough supply'

Benjamin Tal, deputy chief economist at CIBC Capital Markets said that while measures from regulators and the government such as higher interest rates will slow down the economy in the short term and stabilize prices, it will not fix the long term problem.

"The main issue facing Vancouver and Toronto is supply. There is simply not enough supply, while demand is rising due to demographics," Tal said.

"The issue is that, yes, it is a crisis now, [but] it will be even more significant, and a more severe crisis in the future."

Tal describes unaffordable markets in Toronto and Vancouver as "just the beginning" unless the government change policies to allow more supply in the market.

"The focus on all kinds of things like foreign investment and stuff. All those things are good, but they impact things only at the margin," Tal said. "The No. 1 issue is really supply, and nobody is dealing with it. In fact, it's getting worse."

He said even in a recession, which will slow home price appreciation, is more a buying opportunity, rather than an event that could change the track of these markets.

"The long term issue is supply. We have to release land much more quickly. We have to make it much easier for builders to build in terms of red tape. We have to release more land in the green field," Tal said.

He added that there are many other things that can be done, such as creating a rental solution for the housing market in order to relieve some of the pressure on prices.

"We have to allow for a rental market," he said. "At this point, in terms of rental control, we don't have much of a supply, because there is no purpose-built. Not just condos, but purpose-built apartments — so we need to change the way that we think about the rental solution."

Purpose-built apartments are buildings solely designed for renters as opposed to condominiums, which could be owned or rented out.

Average monthly rents in Toronto grew almost 11 per cent in the first quarter from a year ago to $2,206, according to real estate consulting firm Urbanation.