Recently, Scotiabank released a housing market analysis that points to an overall housing shortage in Canada.
The report reads, "Prior to the pandemic, the market was primed to trigger a housing price increase. After the pandemic began, housing construction was delayed due to various restrictions and labor shortages, and new homes came on the market much slower than population growth, leaving an unprecedented imbalance between supply and demand."
The 2020 pandemic slowed immigration intake, and while demand for new immigrants fell in the short term, the federal government will implement a new immigration program after the pandemic to offset the previous immigration shortfall, and immigration is expected to soar in a short period of time.
Later this year, as classroom instruction at Canadian institutions of higher learning gradually resumes, many international students will return to Canada one-by-one they will need housing.
The tourism industry will also restart, and properties that were once used for short-term rentals will return to the short-term rental market, making the supply of long-term rentals even tighter.
The report notes that immigration has surged since 2015, and by 2018 the number of homes owned per capita was already below the historical average. Subsequent years of population growth have been much faster than the rate of new housing construction, allowing the number of homes owned per capita to bottom out in 2020.
Among the G7 countries (U.S., U.K., France, Germany, Japan, Italy, Canada), Canada has the lowest number of homes per 1,000 residents: 424 homes per 1,000 residents. This compares to the current average of 471 homes per 1,000 residents in the G7 countries. Since 2016, the number of homes per 1,000 Canadians has been declining due to a sharp rise in population growth, and Canada is currently 11% below the G7 average.
To reach the G7 average, Canada currently needs 1.8 million new homes; to reach the UK level of 427 per 1,000, 250,000 new homes are needed; to reach the US level of 427 per 1,000, 99,000 new homes are needed, compared to only 188,000 new homes across Canada in the last 10 years.
Correspondingly, home prices have reflected this. Federal Reserve data show that Canadian housing prices have generally doubled since the financial crisis. By comparison, Canadian housing prices have grown three times faster than those in other G7 countries. From 2005 to 2020, Canadian home prices rose 88.0 percent, ranking first in the rate of increase. The second place G7 country is Germany, where prices rose 32.3 percent over the same period, just one-third of the rate of increase in Canadian prices. During the same period, U.S. real estate prices rose by only 3.0%, less than a fraction of the Canadian housing market.
The top 10 population centers, which include Vancouver, Toronto, Quebec City and Calgary, are also lagging very behind in the rate of new home construction. While Vancouver saw the number of homes owned per 1,000 people grow from 398 to 406 between 2016-2020, it is still well below the national average, while Toronto is at the bottom of the 10 largest cities, with 365 homes owned per 1,000 people in 2016, the lowest level at the time, and dropping further to 360 in 2020, still the lowest level in the country.
"These findings imply that house prices will rise for the foreseeable future until the number of new housing builds can close the population growth gap. Government policy should focus on increasing supply."
The report recommends that federal, provincial and municipal governments, in conjunction with developers, investors and non-profit organizations, accurately analyze the root causes of market imbalances and provide a more responsible response.