If you are thinking about relocating to Canada, you have probably looked at the housing market, hoping to find an ideal residence.
You have probably realized that houses in Canada are very expensive compared to, for example, the US, leaving you wondering why that is the case.
The reason houses are so expensive in Canada is that the demand for homes exceeds supply.
Other reasons for this are immigration, low-interest rates, and an increase in foreign money getting into the country, among other reasons that this article will dwell on.
In many Canadian cities, this has brought exceptional appreciation levels for homeowners and equal unaffordability levels for those who are yet to own a home.
Why Real Estate is more expensive in Canada
The following reasons explain the costly housing prices in Canada
1. Demand and Supply
Canadian real estate makes up approximately 12% of its gross domestic product, making it an essential industry.
Nonetheless, there is a higher demand for houses but not enough houses to meet the demand.
When there is a shortage of supply of properties within a certain city or country, it results in bidding wars for houses that are not specifically worth their asking price.
The scarcity of available housing options makes potential buyers engage in bidding wars on the few properties available to outdo their competition.
This is especially the case in cities like Montreal and Toronto, where the supply of houses is very low compared to the demand.
Another reason why houses are so expensive in Canada is immigration. This is because Canada has a high rate of immigrants.
It is a good place to start life afresh and explore new opportunities. In 2021, Canada was expecting to welcome more than 350,000 immigrants.
Toronto tops the list of favorite cities to immigrate to worldwide, explaining why many people choose to immigrate to Canada.
As a result, the demand for houses goes up, but there aren’t enough houses to meet this demand. So, those with properties to lease or sell take advantage of the high demand and sell to the highest bidder.
3. Increased Foreign Money
Foreign investors have contributed to the unaffordability of houses in Canada. Investors have huge sums of money to purchase properties, which they flip and sell at a higher profit. Therefore, residents have to compete with foreign investors who have massive wealth.
The high-value investors can buy all the affordable housing options and take them off the market, leaving the citizens with the more expensive options that they cannot afford. This type of thinking makes buyers offer more for houses more quickly to outdo the competition.
4. Fees and Taxes
Development charges have risen by about 878% from 2004, which is an additional $150,000 to the price of an average new condo.
The city levies the fees when an investor applies for a building permit, which is eventually passed over to the home buyer when buying the property.
The Financial Post reports that taxes are also levied during land transfer, where they are paid to the province upon the closure of a real estate sale. This amounts to about $54,000 for an average Toronto detached home.
Although property taxes do not directly impact the property’s price, they limit those who can afford a new home.
This is dependent on their long-term financial condition, which amounts to thousands of dollars per year on a typical detached home, averaging $1.52 million.
5. Low-Interest Rates
Low rates in interest are another reason for homes being expensive in Canada. But are low-interest rates a bad thing?
According to an article by the Financial Post, the governor of the Bank of Canada, Stephen Poloz, once suggested lowering interest rates because of a weakening Canadian economy.
The result would be more buyers getting into the market, which would push Toronto’s housing prices to unprecedented heights. But why does this happen? When people increase their purchases, it leads to less inventory.
So, if you are wondering if having low-interest rates is a good thing in the real estate market, the answer is no, more so for buyers.
6. Canadians have Resumed Work
Another factor contributing to the expensive housing market in Canada is that people have resumed work after the break brought about by COVID-19. Since June 2020, Canada has added or refilled more than 1 million jobs.
Many businesses were forced to close during the initial months of the COVID-19 pandemic. After easing of lockdown restriction, many people resumed work.
It is possible that the increased demand for houses is by people formerly laid off but have now been re-hired.
Lower unemployment is favorable to the housing market. When people are in employment, they can make mortgage payments. High unemployment rates can cause a market crash, but homeowners were granted mortgage deferrals in the months following the pandemic outbreak.
This saved many people from selling their homes. However, the mortgage deferral is no longer there, which may actually not be needed with Canadians resuming work.
When purchasing a home in any country, not just Canada, there are other factors to consider.
Buying a Home in a City
Buying property in a city is more expensive than buying in a rural area. This is because you have easy access to goods and services in the city. The higher the status of a city, the more expensive its real estate and cost of living.
Big cities like Toronto are no exception. The closer you are to amenities such as schools, restaurants, children’s playgrounds, etc., the more you’ll pay for a house in the area.
Many people prefer to be closer to such amenities, which results in increased demand leading to higher rents and mortgages.
Cities that have more job opportunities to offer have expensive housing. This is because more people move there looking for work and houses to live in.
This is one factor brought about by foreigners relocating to Canada to start new careers or a new life.
People will always move where there is money and opportunity. This can only be found in major cities where there is an abundance of opportunities.