The price of housing in Canada has soared throughout the pandemic. This has been due to the government placing a priority on foreign investors and current homeowners, the actions taken by the Bank of Canada throughout the pandemic, and Canadians saving a higher portion of their income.
Setting Records
Real estate companies such as RE/MAX predicted that the price of housing for 2021 increased between 4-6%. The upper-end of the estimate would be the highest recorded level of change in the last 3 years.
Where The Government Stands
The Liberal government’s current public and policy positions have contributed to this pricing surge. Over the course of the last few years, foreign investors have purchased a lot of housing in Canada. The Liberal government views this as a key source of foreign investment and as a positive due to it. This flood of foreign money with the federal government’s approval has forced Canadians to have to compete with investors all over the world for housing in Canada and therefore a sharp spike in the price of housing.
Foreign investors aren’t the only group the federal government is picking over those trying to enter the housing market. The Liberal Housing Secretary has also come out to defend the high prices stating that it would be awful for current homeowners to have “ten percent of the equity in their home suddenly disappear overnight.” This is due to the fact that housing equity plays a big role in both helping people finance loans and securing their retirement.
The Bank In Action
The Bank of Canada set interest rates down to a record low of 0.25% in 2020 to promote growth and spending which has contributed to increased housing costs. By lowering interest rates, the Bank of Canada made it easier for people to have access to higher levels of credit and bigger loans. This means that more people are able to bid even higher amounts on housing leading to a jump in price.
$ave That Money
Not only do Canadians have more credit, but also have more income available to them to throw at housing due to the pandemic. Despite mean labor wages dropping by $1600, due to welfare programs the overall mean income of Canadians rose by $1800. On top of that restrictions enacted by each level of government have deterred spending, leading Canadians to have spent $4000 less on average. All this together has led to prices rising as Canadians are able to bid higher over a scarce housing market due to a lack of new supply caused by supply chain disruptions because of the pandemic.
The combination of the government’s position, the direction taken by the Bank of Canada, and Canadians saving more all happening at the same moment in time has lead to this record jump. Canadians will now look to their government to see whether this trend will continue. As restrictions loosen, people will begin spending more money and the economy will continue to recover. This will also lead the Bank of Canada to increase interest rates once again. The only element that isn’t shaped by the passing of the pandemic is the federal government’s preference of foreign investors and current homeowners over those who are trying to finally break into the market.
Sources:
- https://vancouversun.com/opinion/columnists/douglas-todd-canadian-real-estate-market-better-for-foreign-investors-than-locals-admits-housing-secretary
- https://www.youtube.com/watch?v=nUFZ1_fC3Kw&t=1206s
- https://blog.remax.ca/canadian-housing-market-outlook/
- https://www.bankofcanada.ca/2021/04/fad-press-release-2021-04-21/#:~:text=The%20Bank%20of%20Canada%20today,deposit%20rate%20at%20%C2%BC%20percent.
- https://www.bankofcanada.ca/2021/03/covid-19-savings-and-household-spending/
