Canada's housing bubble

The Canadian government just extended its ban on purchases of homes by foreign buyers. The ban makes it illegal for people who are residents of other countries to buy homes in Canada. The government first announced the ban in 2022, and now it's been extended until 2027. 

They introduced this ban because Canada's experiencing a housing shortage – the population keeps growing, and the number of new homes isn't growing at the same rate. So there's way more demand than supply for housing, and the prices for homes have gone way up.

And we've had a housing problem for a while - even before the shortage in supply, prices had already risen to a crazy level; Canada's been in a housing bubble for about 20 years now. A housing bubble is when the price of homes gets driven up to unnatural levels. This happens because of speculative buying, where people just buy a house with the goal of selling it for a profit. And it's also caused by people paying too much for their homes, due to unrealistic valuations, or due to low interest rates, which make it easier to take out a mortgage. When you compare the average salary to the average price of homes, Canada is very unaffordable compared to most other countries, including the U.S. From 2005-2022, U.S. housing prices rose by 26% (adjusted for inflation) -  in Canada, during that same time, housing prices rose 142%.

So, we have this housing crisis; the supply of houses has fallen, the demand has risen, the prices have risen, and peoples' incomes have not risen at nearly the same rate as the prices. It isn't clear how much of an effect the foreign buyer ban is having – foreign nationals are about 5% of real estate investors in Canada. So, the ban could improve housing supply for Canadian citizens a little bit, but it won't fix the problem.

The government is trying to encourage cities to build more houses, by providing them funding for construction projects. But this takes time. And because of  inflation and increased costs, there aren't as many developers building new residential properties.

There's also an underused housing tax that's supposed to discourage speculation; people who buy a house but don't live there have to pay extra taxes. With this tax, you have to pay 1% of the property value if you don't live there; so, if you have a house worth $1,000,000, you have to pay $10,000. Which is a lot of money, but if you are able to own a house worth $1,000,000 and not even live there, then paying $10,000 in extra taxes probably isn't a huge problem for you.

Listening Homework |
by Homework Cat

Listening Homework
by Homework Cat

Warmup

What is causing the housing crisis in Canada?

Listening Homework

Current assignment:
Canada's housing bubble

Warmup

What is causing the housing crisis in Canada?

Listening Homework

Current assignment:Canada's housing bubble

Current assignment:
Canada's housing bubble