Structural factors explain Canada’s housing trajectory
The global financial crisis created very different housing market outcomes across countries. In the United States, house prices fell sharply before eventually recovering. In Canada, prices continued to rise with only a brief interruption.
The key difference is not what happened during the crisis, but rather what happened afterward. Canada’s house prices continued to grow rapidly for over a decade, eventually outpacing most peer countries. Even if Canada had experienced a U.S.-style correction, it would still rank among the fastest growing house prices in our international comparison. (see the dotted red line in Figure 1 above) 3
This suggests that the forces behind Canada’s affordability challenges developed over many years and cannot be attributed to a single event. Understanding these longer-term drivers is essential to understanding Canada’s high house prices.
How population growth has driven home prices over the past 20 years
Population growth, partly driven by migration, is a key source of housing demand. Existing research and CMHC models suggest it has a significant effect on house price growth.
Over the past 20 years, countries with faster population growth generally saw stronger real house price growth (see Figure 2).
Canada and comparable, open economies such as Australia, New Zealand, Norway and Sweden share similar macroeconomic policy frameworks. They also had broadly similar experiences during and after the global financial crisis. None experienced a major housing correction after 2008, and all saw strong population growth alongside rising house prices.
Within this group, Canada recorded the steepest increase in home prices over the past 2 decades after adjusting for population growth (see Figure 2).