Gap between housing supply and demand largest in Toronto, Vancouver: CMHC

Gap between housing supply and demand largest in Toronto, Vancouver: CMHC

Gap between housing supply and demand largest in Toronto, Vancouver: CMHC

A "supply response that was weaker than expected, given the upsurge in demand" is the primary cause of escalating home prices in Metro Vancouver since 2010, according to a major new study released February 7 by the Canada Mortgage and Housing Corporation (CMHC).

CMHC has previously said 52 per cent of the buyers who purchased a home recently in Toronto or Vancouver believe foreign buyers are having an influence on home prices in those centres. And on Tuesday, the agency released data showing that almost 10 percent of mortgages issued to people under the age of 25 in Vancouver and Toronto in 2016 went to non-permanent residents.

Data gaps are keeping CMHC from developing a full picture of why Montreal, Calgary and Edmonton don't have as big of an inconsistency between supply and demand as Toronto and Vancouver do, but CMHC's deputy chief economist Aled ab Iorwerth said he has noticed Calgary and Edmonton responding to demand with "horizontal sprawl".

Today's report, however, points to weak housing supply as a main culprit for runaway prices.

The trouble, according to the report, is that the pace at which both cities increased their housing stock was much slower than the pace at which both received new inflows of people wanting to settle and buy a house there.

The study found that three-quarters of the 48 per cent price gain seen in Vancouver from 2010 to 2016 was attributable to economic factors, including increases in population, jobs and income, as well as low mortgage rates. The average cost rose 40 per cent in Toronto.

Proportionally, more condominiums have been coming onto the market in those two cities than single detached homes, partly due to availability and price of land.

The report follows new data released by Statistics Canada late a year ago that showed that non-residents homeowners account for 3.4 per cent of homes in Toronto and 4.9 per cent in Vancouver. In the condo segment, where the supply-demand mismatch wasn't so severe, prices climbed at a slower rate, the report shows. While that number appears low, several economists and housing experts say the share of foreigners buying homes in a given period may be significantly higher, with potentially sizable effects on prices.

Understanding the extent to which foreign capital affects home prices in Canada remains extent "a persistent challenge", the report said.

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