Factors that are affecting Canada's housing crisis
While it has been common to blame Canada’s houses crisis on a shortage of homes, there are reasons to believe that is not the case. One thing that is certain is there is a lack of affordable housing. Here are some things you should know about Canada’s housing crisis and so-called home shortage.
Does Canada actually have a housing shortage?
Some would argue that there is not really a housing shortage in Canada, and that the housing crisis in this country is better attributed to speculation, rather than housing shortages. A recent BMO study found that there were enough houses for everyone, even when the housing crisis was at its height. The issue was that investors were purchasing extra properties with the hopes that the prices would rise.
And while it may be tempting to blame the issue on foreign investors, BMO’s research found that many Canadians purchased second and third properties, usually to rent them out or with the aim of flipping them for profit. The result of all this is a sustained rise in prices in a short period of time—or a housing crisis (or bubble).
While Canadian banks did facilitate the crisis, Bank of Canada polices such as low interest rates further precipitated the rush to purchase properties in 2020-2021. Commercial banks, meanwhile, were mainly responding to policies set by Canada’s central bank. Interest rates have increased since 2021 and commercial banks are required more and more to scrutinize buyers’ finances prior to approving mortgages, meaning it is unlikely that banks will, ultimately, cause a housing market crash.
Building more houses is not a solution—affordability might be
One of the major housing issues facing Canadians is that it is a basic human right and a commodity that people and entities profit from, according to a research paper released by the University of Waterloo’s urban studies department. For this reason, for-profit developers would be happy to build more premium-priced homes—it is where the largest profit margins are.
It is also why Canada’s housing market needs more affordable housing rather than simply more housing. Toward that end, some proposed governmental solutions include open-ended grants and subsidies for both homebuyers and homebuilders, who will build and attempt to purchase the homes dictated by the for-profit housing market.
Another proposed solution is known as up-zoning, which would do away with zoning rules requiring that a recently demolished home be replaced by a single-family dwelling, to maintain the aesthetics of the neighbourhood. The proposal would encourage building more types of houses, including townhouses, laneway homes, triplexes, and low-level apartments. Some argue, however, that rather than helping low-income families find affordable housing, the practice of up-zoning instead resembles gentrification.
Factors that impact the housing market in Canada
While a shortage of housing in Canada has often been blamed for the housing crisis, that mentality is now being challenged. Housing affordability is also commonly viewed as being a major factor. Home prices outpacing wages by about 50% in the past seven years have been cited as another factor in Canada’s housing crisis, as have fluctuating interest rates.
The housing crisis is no longer a homebuyer’s problem
The housing crisis in Canada is no longer simply a homebuyer’s problem—it is becoming a major issue for homeowners as well. House prices in Canada have, for most of the last decade, been rising more quickly than incomes. For instance, home prices have risen nearly 50% more quickly than wages since 2015. That essentially means that over the last seven years Canadian homes have become even more unaffordable.
In 2022, however, home price gains have been reversing, with property prices falling from their February peak by 18.5%, or $150,000. While that may be better for homebuyers, particularly homebuyers hoping to enter the housing market, it is creating problems for homeowners, who are seeing their net worth drop. Plus, anyone who has a mortgage with an interest rate that changes, otherwise known as a floating mortgage, are facing rising interest payments, as well.
In other words, the housing crisis in Canada is not only a problem for first-time homebuyers who are being forced out of the market by skyrocketing prices—homeowners are also feeling the pressure due in large part to rising interest rates.