Why is housing so expensive?

 

What caused it?

Why So Expensive?

Solutions?

Why is housing so expensive?

Some might say the answer is obvious: there simply aren’t enough homes to meet demand. So the answer is to just build more homes.

But that answer ignores at least two issues:

      1. Housing construction has exceeded population growth in many instances but the price of housing still goes up. In other words, this isn’t simply a supply issue and there is no guarantee that taking a build, baby, build approach will make housing more affordable.
      2. If we leave it to the blind hand of the market, what kind of housing gets priority and when does it get built? Is it mansions on a former protected greenbelt or agricultural land? Is it multi-plexes and laneway units in existing city neighbourhoods? Is it purpose-built rental units and post-secondary student residences? Or is it social housing to save people from living in encampments? The blind hand of the market will build what is likely to generate the greatest profit.
    Why housing is so expensive

    Why is housing so expensive?

    The market may also decide that no housing will be built. Municipal officials complain bitterly that housing developments approved decades in the past remain undeveloped, worsening the housing crisis.

    It turns out then, that the answer to the question of “why is housing so expensive” is likely far more complicated than it first seems.

    For example, a report published by Statistics Canada in June 2023 noted that, from 2019 to 2021, Toronto’s housing stock grew by 3.5% (+61,320 properties) while its population only grew by 1.3% — a 2.2% increase in supply over population. Yet, the average price of a home, according to the Canadian Real Estate Association (CREA), went from $761,800 in January 2019 to $1,187,200 by December 2021 – a $425,400, or 56%, increase.

    A similar scenario played out in Vancouver where housing stock grew by 3.6% (+28,085) while its population grew by 2.1%.

    Obviously, there was more involved in the steep climb in the cost of housing than simply a lack of supply.  The most likely cause of the increase was a dramatic decrease in interest rates, and the expansion of the money supply, in response to the feared economic consequences of the COVID-19 pandemic.

    For a list of other factors contributing to the rapid rise in housing prices in both Canada and around the world, see “What caused the housing crisis”. 

    More than half of this growth was attributed to condominium apartments. In Toronto, 38,070 such properties were added during that period, and the number of net new row houses (+12,825) surpassed the number of net new single detached houses (+8,425) in the CMA. A similar trend was observed in Vancouver, with 6,245 net new row houses and a net reduction in single detached homes of 3,680. However, while population and housing stock growth are indicators of supply and demand, they are not the sole determinants of housing prices in these CMAs. Other factors such as income, macroeconomic conditions, and pre-existing shortages in housing supply also play an important role.

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