Five things we learned from the CMHC’s massive report on Canadian housing

By: Jessica Mach on February 9, 2018

An exhaustive housing report was released this week by The Canada Mortgage and Housing Corporation (CMHC). It aims to answer a single, albeit complex, question: why have homes become so expensive in Canada’s biggest cities?

A lot of ink has been spilled by experts, prospective homebuyers, and casual observers over the years to answer that question. Scapegoats have ranged from foreign buyers to speculative buying. While CMHC’s report, which was commissioned by the Minister of Families, Children and Social Development and looks at the period between 2010 and 2016, confirmed a few of these theories, it also lent them nuance.

Below, we list five of the most interesting things we found out from the report.

1. Toronto and Vancouver are attracting high-skilled, high-income tech workers — with expensive tastes

Traditionally, a city’s home prices go up when interest rates are relatively low; its population gets bigger; its economy gets stronger; or that population has a lot of disposable income.

When the CMHC looked at economic data across Toronto and Vancouver, it found that the last factor held true in both cities. In addition to Montreal, the cities boasted the highest number of patents in the country — which suggests a high concentration of tech jobs in those areas. And with tech jobs generally come higher incomes.

Historically, cities with a bigger concentration of high-earning households start to see housing inequality increase over time. This is because the richer people are, the more likely they’ll want — and be able to pay for — expensive luxury homes. (The CMHC’s analysis confirmed that Canada’s major cities has seen “a shift in the distribution of sales toward high-end homes” in the six-year period that it analyzed.) And when there’s more demand for something, the market will adjust — in this case, by moving prices upwards.

2. Speculative buying is driving prices up — but not as much as you think

According to the CMHC, “traditional” factors — again, like low interest rates, population growth, and a high volume of disposable income — had a bigger impact on home prices than speculative activity did between 2010 and 2016.

3. Also, speculative activity might — might! — actually be a good thing

…at least when it comes to new constructions. When investors finance new housing constructions that they can later sell for more money than they’d put in, at least they’re increasing the supply of new housing in the country. And in a city like Toronto, where the vacancy rate is, by most experts’ estimations, far too low, this is not an entirely bad thing.

4. Fear of rising prices is driving consumers into bidding wars and more

Consumer psychology has also played a role in driving prices up, said the CMHC.

The report spotlights Vancouver in this case, where, despite a lack of concrete evidence, the majority of residents believe that foreign investors are one of the “main causes of high housing prices.”

The notion that foreign investors with endless wells of cash are speculatively buying up the city’s housing supply has incited the activity of local speculative buyers, who believe that their investments will reap huge — and often unrealistic — rewards. And these latter, local investors might actually have a much bigger hand in driving prices higher.

The belief that prices will keep climbing has also made non-speculative buyers more impulsive: more people keep participating in (likely unnecessary) bidding wars to secure a home, and paying substantially more than asking prices.

5. Foreign buyers own more condos than they do detached houses

Towards the end of 2017, Statistics Canada released a report showing that non-residents only owned 3.4% of the homes in Toronto, and 4.9% of the homes in Vancouver.

Foreign buyers are a favourite scapegoat for many people watching Canada’s housing market, where the prices of detached homes have risen dramatically in the six-year period monitored by CMHC. But, the StatCan report showed that foreign buyers proportionally owned more condos than they did single-detached homes.

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