In a significant revelation, Statistics Canada (Stat Can) has revealed data showing that the housing supply in the Census Metropolitan Areas (CMAs) of Toronto and Vancouver has been expanding at a faster rate than their respective populations. This insightful report casts doubt on the common belief that a lack of supply was the only factor driving the skyrocketing home prices in these markets and instead emphasizes the importance of loose credit and market narratives. Let’s delve into the numbers and explore the implications of this revelation.
Canada’s Largest Real Estate Markets Experience Supply Surge: The CHSP analysis reveals that Toronto, Canada’s largest city, has not only kept up with housing supply but actually faces an allocation issue. Between 2019 and 2021, Toronto’s CMA witnessed a population increase of 1.3% (equivalent to +84,480 people), while the housing stock expanded by 3.5% (+61,320 properties). These numbers translate to an approximate ratio of 1 home for every 1.3 people, suggesting that housing scarcity might not be as severe as widely perceived.
Similarly, Vancouver, renowned for being Canada’s most expensive city and an immigration hub, experienced a slightly tighter housing market. Nevertheless, Stat Can’s findings indicate that Vancouver’s CMA witnessed a 3.6% growth (+28,085 homes) in housing stock during the same period, whereas its population grew by 2.1% (+55,655 people). This implies an average of 2 people per home, which is approximately 26% lower than the average household size in the region.
Long-Term Perspective Challenges Supply Shortage Narrative: Contrary to the prevailing notion of a chronic supply shortage in Canada, BMO (Bank of Montreal) argues that the country’s housing supply has consistently outpaced household formation over the past two decades. While the data suggests that there might not be an abundance of excess housing, it implies that Canada’s 30-plus years of exuberant price growth are not solely based on a supply shortage. In fact, a perceived shortage can often be manufactured when home prices are rising sharply and supply is deliberately throttled.
The Role of Loose Credit and the International Monetary System: During the period when housing supply outpaced population growth, these markets witnessed significant price growth, with the narrative revolving around a supply shortage. However, the reality, as confirmed by the Bank of International Settlements (BIS), a central bank for central banks, is that low interest rates worldwide contributed to the surge in home prices. Cheap credit flooded the market, and this phenomenon was not limited to Canada alone.
The Bank of Canada’s research supports the findings: The Bank of Canada (BoC), in alignment with the BIS findings, discovered that low interest rates played a substantial role in driving home prices higher for three decades. Paradoxically, these price escalations made housing less affordable, contradicting the prevailing narrative. This aligns with the notion that loose credit and market dynamics have been the primary driving forces behind the real estate market’s trajectory.
Government’s Role and Banks’ Perspectives: While some of Canada’s major banks, including BMO and Scotiabank, have expressed skepticism regarding the existence of a supply shortage, they anticipate the government’s intentional efforts to create one. BMO argues that the Federal Government is using aggressive population growth as a demand stimulus, potentially aiming to establish a price floor in what global banks have labeled “the world’s largest real estate bubble.” Scotiabank advocates for higher interest rates to stabilize the housing market, considering the population-demand strategy as a source of instability.
The recent report from StatCan challenges the notion of a supply shortage as the primary driver of escalating home prices in Canada’s largest real estate markets. The findings suggest that loose credit, coupled with market narratives, has played a significant role in shaping the trajectory of housing prices. As the debate continues, it is crucial for policymakers, financial institutions, and market participants to consider these insights and seek a balanced approach to address the challenges and ensure stability in the Canadian real estate market.
Since before the Budget Day on April 16, Prime Minister Justin Trudeau has been making announcements addressing the housing crisis facing the North American nation. From incentivizing the construction of affordable housing to reconstruction, these plans promise to improve the housing infrastructure of Canada.
The real estate sector’s most influential leaders and innovators will be gathering in Calgary for a conference that, in all probability, is going to be the biggest real estate event in Alberta. Titled, ‘Rock’N REAL ESTATE 2024’, the BUZZ conference will be taking place in Carriage House Hotel & Conference Centre on Thursday, May 2. The meeting will open at 7:30 am with a light continental breakfast. The discussion will go from 8 am to 5 pm followed by an hour of networking session at the end of the event. Cocktails on the house!
Canadian housing activity was largely stable in March, but a key spring selling season lies ahead. Existing homesales edged up 0.5% in March (seasonally adjusted) and were up a modest 1.7% from sluggish year-ago levels (although an early Easter long weekend likely reduced volumes somewhat). While current activity might seem quiet compared to the exuberance in 2021 and early 2022, sales volumes are trending about in line with pre-COVID norms, albeit at the low end of that range.
“We are changing the way we build homes in Canada. In our housing plan and Budget 2024, we are delivering ambitious action and investments to build more homes, make it easier to rent or own, and help the most vulnerable with stable housing. This is about restoring fairness for every generation, and housing is at the heart of that”, said Canadian Prime Minister, Justin Trudeau about the country’s new housing plan.
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