House prices are rising quickly, and it is not just a consequence of the pandemic. Though exacerbated by COVID-19, this price rise is a persistent long-term trend, writes Livio Di Matteo in a Fraser Forum post.
He lays out the stark numbers:
“Between 2005 and 2020, the annual average of the Canadian Real Estate Association’s monthly Seasonally Adjusted Composite MLS House Price in Canada has gone from $255,625 to $609,892. And in April 2021, the average Canadian price hit $723,500. Single-family homes in Greater Vancouver now average just below $2 million and significantly more than $1 million in the Greater Toronto Area. Moreover, the price rise has spilled over into smaller centres across the country.”
This is creating a reality where the have-nots are increasingly being locked out of the market and left behind as the homeowners grow more prosperous and continue to inflate prices.
Numerous factors contribute. Spiking population rates aided by higher rates of immigration (a 528,000 population increase in 2019 alone), declining household size (from an average of 3.5 in 1971 to 2.5 in 2016), long-term decline in mortgage interest rates, a doubling of per-capita incomes from 1971 to present, and, now thanks to COVID, a flood of government fiscal support in the form of CERB and other payments that have added $180 billion to Canadian savings in 2020.
Overall, though, he writes, it really is all about supply and demand. Governments concerned with short-term outcomes have favoured demand-side solutions such as foreign buyer taxes and tightening mortgage qualifications. But while supply side solutions of building more housing would help the issue long term, little focus has been placed there, and we have been adding an annual average of less than 200,000 new housing units.