Canada is experiencing a remarkable surge in housing demand, driven by its population boom, which has led to soaring home prices. As the historical gap between population growth and property price increases widens, experts predict that this trend will intensify in the years to come. With record-breaking immigration numbers and increasing house starts, the Canadian housing market is expanding at an exceptional rate, raising concerns among potential homebuyers about affordability and the possibility of a market crash.
The Impact of Population Boom on Housing Demand
Recent analysis by Zoocasa underscores the significant influence of Canada’s expanding population on housing demand, exacerbating the pressure on an already limited supply. Over the past 18 years, home prices have consistently outpaced population growth by a significant margin, and this trend is expected to continue. In 2022, a record-breaking 437,180 immigrants were welcomed to Canada, adding further demand to the housing market, resulting in a 31% increase in the national average home price to $804,900.
The report projects that the housing supply will remain strained due to an anticipated influx of over 465,000 new immigrants annually, projected to exceed 500,000 by 2025, leading to further price hikes. Despite hopes for a significant price decline, the report argues that the upward trajectory of both population and home prices in recent years makes such a scenario unlikely.
Affordability Challenges and Regional Disparities
Research from hellosafe sheds light on the affordability challenges faced by homeowners in different parts of Canada. For instance, in Ontario, owning a 1,500-square-foot home requires an average household income of over $175,000. In Toronto, the province’s most expensive city, prospective buyers would need an astonishing gross yearly household income of $591,828 to afford a comparable-sized home, equivalent to approximately $1,400 per square foot. On the other hand, Timmins stands as the most affordable market, where a household income of only $64,896, or $203 per square foot, is required.
These disparities in affordability across regions highlight the urgent need to address the housing crisis and implement policies that promote balanced growth throughout the country.
Construction Boom Amidst Affordability Crisis
Despite concerns about affordability, Canada has witnessed a remarkable increase in housing starts, reversing a previous negative trend. In June, the Canada Mortgage and Housing Corporation (CMHC) reported a record 281,373 new housing units initiated, the highest number in a decade. The surge in building activity was mainly driven by a 59% month-over-month increase in multi-unit starts, while single-family starts rose by 3% compared to May.
Economists caution against overinterpreting a single month’s rise, especially in a volatile measure like housing starts. Instead, the more reliable six-month average of starts increased by 2.4% to 234,974 units. However, with high borrowing rates weighing on the economy, concerns arise that home construction may become a drag on residential investment in the coming quarters.
Tax-Free First Home Savings Account (FHSA) Offers Hope for Aspiring Homebuyers
Despite affordability obstacles, there is a glimmer of hope for first-time homeowners in Canada. EQ Bank’s Tax-Free First Home Savings Account (FHSA) provides potential homebuyers with a tax-free avenue to save for a down payment on their future houses. This FHSA offers a competitive interest rate of 3.00% and is the country’s first fully digital, no-fee savings account.
Introduced in the 2022 federal budget, the FHSA allows Canadians to save up to $40,000 for a down payment on their first home without paying taxes on the money. Similar to the popular Tax-Free Savings Account (TFSA), this account provides investment flexibility and allows tax-free withdrawals for eligible first-home purchases.
As Canada’s population continues to grow, the demand for housing will soar, putting immense strain on an already limited supply and driving property prices even higher, raising concerns about affordability. Nevertheless, amidst these challenges, hopeful homebuyers can turn to the FHSA as a tax-efficient option to save for their dream homes. Policymakers, industry professionals, and Canadians must work collaboratively to identify long-term solutions for a sustainable and accessible housing market as the housing industry evolves and expands.
