Why It’s So Pricey to Live North of The Border
Although America is home to cities such as San Francisco and New York that are well known for their exorbitant housing costs, one would be surprised to discover that housing in Canada is significantly more expensive than US housing on average. In fact, by 2022 a typical single family home in Canada reached twice the cost of the same home in the US. We dive into exactly why this price gap exists.
Why are Houses in Canada More Expensive than the US?
There are five primary factors that make housing in Canada significantly more expensive than in the US:
Canada has a high level of population density.
Although the landmass of Canada is much larger than that of the US, over 80% of the Canadian population lives in urban areas located within 150km of the US border. As such, Canadian housing is concentrated in a very small area whereas the US population is dispersed much more evenly. In fact, a whopping 25% of Canada's population lives in the Golden Horseshoe (area along Lake Ontario spanning from Oshawa to Niagara Falls) which represents less than 1% of Canada's landmass. Since the demand for Canadian real estate is concentrated within such a small percentage of the available land, this places significant pressure on prices.
Canada has a critical shortage of available homes.
Put simply, more people want to buy houses in Canada than the supply of available homes.
Canada lags significantly behind the US in terms of per capita housing starts per year. They have the lowest average housing supply of any G7 nation at 424 units per 1000 people, which is significantly below the G7 average of 484 housing starts per 1000 people. Canada needs to build 1.8 million new homes just to catch up to the G7 average.
In 2022, the Canadian Mortgage and Housing Corporation (CMHC) estimated that Canada needs 5.8 million new homes to be built by 2030 to tackle the affordability crisis. Canada is averaging about 250,000 housing starts per year which leaves the country significantly short of that target if the same pace of home construction continues.
A major driver of Canada’s low housing starts is the considerable government regulation surrounding housing development which simply does not exist in the US. This red tape slows down the process for builders and significantly limits the amount of homes that are able to be built each year.
Foreign investment.
Canada is a hotbed for foreign investment which greatly increases competition in the real estate market and drives up prices.
The stability of Canada's banking and political systems is a huge draw for non-residents looking for a safe place to invest their money. The resilience of the Canadian real estate market was apparent during the 2008 financial crisis when real estate prices across most US markets plummeted while Canadian real estate remained relatively unscathed.
The significant influx of foreign investment has driven legislation changes by multiple levels of government to curb purchases by non-citizens and permanent residents. Toronto and Vancouver have both instituted foreign buyer taxes while the federal government announced a 2-year ban on the purchase of property in Canada by any non-resident beginning January 1, 2023.
Home construction costs are higher in Canada.
In Canada, most homes have basements which adds considerably to construction costs. Due to the colder weather, homes need to have foundations built below the frost line to ensure water pipes don't freeze. By comparison, only about a third of new homes in the US are built with basements. Especially in Southern and coastal states, basements are rare because wet soils make building basements very challenging.
Additionally, the majority of homes in Canada are built with brick exteriors while in the US the majority of homes are built with wood or siding exteriors. Brick homes are more expensive and take longer to build however they provide better protection against cold temperatures which of course is a challenge more prevalent in Canada than the US.
Canada has more immigration per capita.
The United States accepts about one million immigrants per year, which represents about 0.3% of their total population. Meanwhile north of the border, Canada accepts about 400,000 immigrants per year which equates to over 1.1% of the nation’s population.
In November 2022, the Government of Canada announced a plan to further dial up it’s immigration target to 465,000 permanent residents in 2023, 485,000 in 2024 and 500,000 in 2025. This would further increase Canada’s immigration to population ratio to a lofty 1.4%.
The much larger proportional number of newcomers into Canada greatly increases demand for an already limited supply of homes.
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