Offshore Buyers Drive Canadian Home Prices Higher or Are They
With house prices up by double digits in Canada’s Toronto and Vancouver areas, offshore buyers, mainly from China, have fueled public concerns over whether they are inching the Canadians’ home-ownership dream further out of reach.
These concerns have been dismissed by local economists, who say that the real “culprit” for the housing affordability crisis is right there at home, and blaming foreign buyers “amounts to barking up the wrong tree.”
According to these economists, rapid population and employment growth in both cities, lack of develop-able space and low mortgage rates are the true “culprits” behind the unconscionable rise in house prices.
According to National Bank’s chief economist, the rising prices reflect the rapid growth of employment in both cities and the fact that the population of young people aged 20 to 44 is growing.
“It’s wrong to think the rapidly rising housing prices in these 2 markets are the result of speculation,” he said in a new report.
Instead, housing prices, which rose 27% in the year to February in Vancouver and 11% in the same frame in Toronto, are being driven higher by an influx of people who are settling in the city.
“The working age population is growing about 70% faster than the national average in Vancouver and Toronto on the back of strong inflows of highly educated immigrants who can more easily integrate into the job market,” according to the report.
Employment risen by 5.5% in Toronto in 2015 and 4.4% in Vancouver.
“It’s easy to blame the foreign-buyer boogeymen for the home price gains in Vancouver and Toronto,” said another Canadian bank economist.
“…what we do know is that the fundamentals right here at home are strong enough on their own to drive big price gains,” added the economist.
The population growth in the 30 to 39 age group, the “prime first-time or move-up buying years” is accelerating in Toronto and Vancouver.
At the same time, thee 2 cities have accounted for 75 percent of Canada’s net job growth over the past 2 years.
That is putting upward pressure on these two housing markets, but only these two housing markets, said the report.
In Canada as a whole, the first-time home-buying demographic (ages 25 to 34) is shrinking, and at the time that Canada’s housing markets, faced with a dearth of young home buyers, would move into a protracted slump starting around Y 2018.
Besides the growing populations, the limited land supply of some Canadian cities is also a key factor responsible for the surging house prices.
Vancouver is sandwiched between mountains and ocean, and its lack of develop-able space pushed the city towards high-rise development decades ago.
Greater Toronto municipalities are facing development restrictions such as the Green Belt and density requirements that are pushing single-family home construction to the brink of extinction.
Single-family home construction in Toronto fell to its lowest level in 37 years in Y 2015 — “and that’s not a population-adjusted number!”
The cost of borrowing money has been on a 30-year downward trend line in Canada, which is another driving force behind the rise in house prices.
Interest rates in Canada and much of the developed world have been slowly coming down for the past three or so decades, to the point that, today, “a five-year fixed mortgage is barely above the expected long-run inflation rate,” the economist noted.
“The longer this lasts, the hotter these markets will stay hot,” said the expert.
Have a terrific week.