The Great White North’s Housing Squeeze: Why Homes in Canada Cost More?

The dream of homeownership is a cornerstone of the financial well-being for many. But for Canadians, that dream seems to be slipping further out of reach. Compared to its neighbour, the United States, and other developed nations, Canada faces a unique challenge – skyrocketing home prices coupled with stagnant wage growth. Let's delve into the factors behind this disparity and explore what the future holds for Canadian housing affordability.

The Income Gap vs. Housing Price Divide

Canadians have a median household income of roughly CAD 73,000, which translates to about USD 54,000. In contrast, the median American household enjoys a significantly higher income of USD 75,149. Canadians face a steeper hurdle when it comes to buying a home. The average home price in Canada sits at a staggering CAD 30,000 higher than in the US. This disparity paints a clear picture: Canadians are being priced out of the housing market at an alarming rate.

Read More: The Budget in Review: Canada’s Bold Housing Strategy, a Blueprint for Affordable Living

A Trend of Outperformance: Canada's Housing on Fast Forward

Canada's housing market has been on a tear for decades. Since 1990, home prices in Canada have outpaced those of other G7 countries. This trend becomes even more concerning when we look at the price-to-rent ratio, a metric that compares home prices to the rental income generated by the property. A high ratio suggests that property values are appreciating faster than rental yields, making buying less lucrative from an investment standpoint. This phenomenon is particularly pronounced in Toronto, where the price-to-rent ratio for low-rise houses sits at a staggering 47, compared to condos at 29.

Fueling the Fire: Factors Driving Up Canadian Housing Prices

• Canada's population growth is outpacing that of any other G7 country, nearly double the rate. This rapid influx of people puts a strain on the housing supply, driving prices up as demand continues to outstrip available units.

• The price-to-rent ratio in Canada has been accelerating at a faster pace than other G7 nations since 2006. This growing disconnect between house prices and rental income, especially evident in Toronto, suggests a potential bubble waiting to burst.

Psychology and the Future of Canadian Housing

The expectation of continued price appreciation is another significant factor influencing the current market. This psychological driver motivates people to buy homes now, even if rents don't justify current prices. However, rising rents are another undeniable trend. As more and more people are priced out of the ownership market, the demand for rentals increases, putting further upward pressure on rent prices.

The Bottom Line: A Market Out of Sync

The Canadian housing market stands out for its high cost compared to both the US and other G7 countries. This disparity can be attributed to factors like lower median incomes in Canada, coupled with the country's rapid population growth and a growing disconnect between home prices and rental yields. While the expectation of future appreciation continues to fuel the market, rising rents indicate a potential future adjustment. The long-term affordability of Canadian housing remains a pressing issue that policymakers need to address to ensure homeownership remains a realistic dream for all Canadians.