Connor Leach / Edge Columnist
For the past 20 years, Canada’s real estate industry has been looked upon as one of the largest and longest running housing bubbles of the 21st century.
In the beginning of 2022, there were only 5000 homes currently for sale in Metro Vancouver. This was the lowest level of house quantity for sale, in the past 30 years. In Vancouver, Canada’s most unaffordable city, the ratio of median home price to local median household income came out to be 17.3. This is the effect of the housing bubble.
But what exactly is a housing bubble? There are two concepts to a housing bubble;
House prices increase dramatically, indicators of this happening are Interest payments in relation to income for home buyers, housing buyers, expectations about prices to bank behavior. Then our bubble bursts, causing the prices to fall dramatically. Indicators are when homes became too overvalued, and supply of available housing starts to outpace demand.
But Canada has been suffering with the first half of the bubble. For the past 20 years, Canada’s housing industry has been growing at an alarming rate to its relation to the population’s net income with exemption of a down curve in 2008/2009 and 2017. But what has the government done about the housing crisis?
On April 11th, 2022, The government announced that they will increase the number of homes being built annually from 200k, to 400k annually. Does this help the crisis from stopping? Well first, Canada doesn’t have enough labor workers for this plan. “The reality is, they’re dealing with labor shortages, They’re dealing with material shortages, they’re dealing with all kinds of challenges in obtaining the material that they need to build homes,” said Jean-François Perrault, chief economist at Scotiabank.
Well, how does Canada solve labor shortage? In February, Canada pushed its unemployment rate to 5.5 percent from a previous 5.7, by adding 337,000 new jobs. Canada can see a decrease in the unemployment rate soon, with Covid-19 restrictions dropping and being more controlled on a global scale.
The long run isn’t 100 percent certain, but experienced economists have a few ideas of what it will look like. According to Oxford economists, the firm sees a substantial decline in home prices. They are predicting a 24 percent decline by 2024.
Sources:
https://www.readthepeak.com/blog/housing-market-crash-canada
https://www.cbc.ca/news/business/canada-jobs-february-1.6381234
Canada wants to build 400,000 homes a year. Who’s going to build them?