Tsuriel Somerville, a professor of urban economics at the University of British Columbia in Vancouver, points out some ignored demographic undercurrents that may partially explain the real estate puzzle. COVID-19, he believes, might have accelerated some transactions that would have happened regardless, but over a more extended period.
But as demand rapidly increased, supply lagged, at least in the resale market. Unlike buyers, sellers may not be motivated to plan both a sale and a subsequent move in the middle of a pandemic, Somerville said. Rosenberg looks at more than just prices to also focus on the supply side, especially the construction of new housing, which he said is at an all-time high. Residential construction in Canada accounted for 9.3 per cent of GDP in 2020, 55 per cent higher than the long-run average value of six per cent. In the United States, by comparison, residential construction accounted for just 4.6 per cent of GDP, he noted.
Calls for the government to address rapidly escalating housing prices are rising, but one should be cautious before advocating for the blunt use of macroprudential instruments. Should the federal government or one of its agencies intervene with a tool that is indiscriminately applied to all of Canada, much like the mortgage stress test, there could be unintended consequences.
Ah yes the purely free market approach has done so great for Canadians, lets check in on how that is working as of 2021: -average home price in Canada is now $719,000 -the average income is $49,000 a year. 🤦♂️