by Paolo Taruc
The Canadian housing market is currently in the midst of an “important transition period,” as its level of activity is expected to stabilize and soften in the coming quarters, according to a recent report by CIBC Economics.
But the market might show tighter conditions over the long-term, as supply issues facing centres such as Toronto and Vancouver will worsen and demand is routinely understated.
“Short of a significant change in housing policies and preferences, there is nothing in the pipeline to alleviate the pressure,” said CIBC deputy chief economist Benjamin Tal in the report.
Talin added that the Toronto and Vancouver markets remain the centre of attention, despite accelerating activity in cities such as Montreal, Ottawa and Winnipeg. “The affordability issue in those cities [Toronto and Vancouver] that is leading to the ‘drive until you qualify’ phenomena works to amplify their influence on neighbouring real estate markets.”
In particular, he said that land supply is already failing to meet projected demand, and that actual demand may actually be stronger than official estimates. “We are all aware of Canada’s recent increase in the annual immigrations quota from 250,000 new immigrants to 300,000—on its way to 450,000. Land use plans made more than a decade ago do not fully capture that change.”
Talin also pointed out the demand from non-permanent residents – such as students and foreign workers – whose numbers have risen over recent years. “What’s important here is not only the increase in their number and their
heavy concentration in Toronto and Vancouver, but also the way that number is being translated into housing demand.
Looking ahead, the economist said the housing market is about to face its most significant test in a decade as the combination of higher interest rates and regulatory changes will work to reduce purchasing power.
“The impact will be noticeable but probably short-lived—mainly in the GTA and Vancouver where supply issues will continue to dominate long-term housing trajectories. At this point we do not see any real relief,” he said. “In fact, the opposite is the case. Without significant changes to land and rental policies alongside a dramatic change to housing preference among buyers, those centers will become even less affordable.”
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