Housing prices have soared throughout Canada, not just in major cities. Since the pandemic began in 2020, even suburbs have seen major growth. According to The Globe and Mail, there are at least nine cities and regions in the country where the average resale house price is more than $1 million.1
But what is driving these Canadian home prices upward? At the core of these price increases are basic supply and demand. But what specifically is driving these home prices up exponentially? Let’s look at a few factors causing a boom in the Canadian housing market.
When examining the housing market, two types of demand are obvious: core demand and non-core demand. Core demand includes population growth, home price growth, savings and equity growth, and the rate of financing. We’ll examine non-core demand below.
Looking at each of these factors in more detail, we can see how they contribute to increasing home prices in Canada. For example, despite a bit of slowdown with the onset of the pandemic, Canada’s pace of population growth remains the highest in the G7.2 Approximately 1.8 million more people lived in Canada in 2021 compared to 2016. This increase in population means more demand for housing, which puts pressure on home prices.2
Another important factor is how much buying power the general public has. Many Canadians were able to save more money in 2020 because everything was shut down. This increase in savings, coupled with increased equity in their existing homes, meant that many Canadians are now looking to buy property.
In addition to core demand, we also have non-core demand influencing home prices. Non-core demand includes foreign capital, long-term real estate investors, short-term rentals, and house flippers. According to The Guardian, nearly 40% of Toronto’s condos are not owner-occupied, meaning they are an investment property for the owners.3 The influx of investment capital and foreign capital both influence Canadian home prices.
Likely, tourism will also start bouncing back as the pandemic starts to slow down, and more travellers and students will be looking for both short-term and long-term rentals.
Lack of Supply
The lack of housing supply is also driving Canadian home prices higher. All the demands listed above would be fine if there were a consistent supply of homes to buy, but multiple factors contribute to the lack of supply that many prospective home buyers are facing.
According to The Financial Post, Canada has the lowest supply of existing homes for sale on record, and even new construction has slowed.4 Housing starts are down 22% compared to November 2021.4
It’s no surprise that with this short supply of homes, some policymakers and residents consider Canadians in a housing crisis. The goal is to speed up and support about 35,000 new affordable housing units. Ontario, Alberta, and Manitoba all fall below the national average of houses per capita, which is 426 per 1,000 people.5
As in many places around the world, Canadian home prices are increasing due to more demand and less supply. But the world is changing fast, and this housing situation could change in the next few months. Many economists speculate that the government will increase interest rates, which might change many people’s purchasing plans. What are your thoughts about the current housing market in Canada?
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