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While foreign investors and record low-interest rates are often pegged as the biggest drivers propelling house prices skywards – truth be told, no one reason is “to blame.”

The real estate boom we’re currently in the midst of comes down to a multitude of factors, many of which stem from demographics and a healthy economic picture, that leading economists from BMO sought to shed light on in a recent report.

“While record low borrowing costs are the most obvious factor behind lofty home prices, the fact that the surge in prices is so heavily concentrated in just two cities (and their environs) means that there are other important factors at play as well,” wrote BMO economists Douglas Porter and Robert Kavcic.

The two cities referred to above are of course, Toronto and Vancouver, as well as their immediate neighbours Hamilton and Victoria. Last month, those were the only cities in Canada that saw substantial price gains whereas the majority saw tepid if not negative growth, such as Quebec, where values actually plummeted nearly four per cent.

So what sets these two hot market apart from the rest of Canada? Here are the main forces driving demand according to Porter and Kavcic:

Job Growth

When comparing the job stats in Ontario and British Columbia to the rest of Canada, the BMOeconomists put it frankly – “it’s not even close.”

But even more eye-opening was the labour market performance in Toronto and Vancouver.

These two metropolises alone have “accounted for all of Canada’s net job growth in the past year” and represent about 25 per cent of all the nation’s jobs.

While several cities have seen disappointing employment numbers, largely exasperated by record-low oil prices, Toronto and Vancouver have actually experienced job growth.

“Note that there are roughly 250,000 more jobs in these two cities today than would be the case if they had maintained their average employment share of the 2001- 11 period—that’s a strong marginal boost to housing demand,” reads the report.


Gen Y is now older and entering the property market in full force.

Once children of the early 1980’s and 90’s, they are now in their prime home buying and “child-producing” years and as a result, are driving demand for homes – specially detached houses with two-car garages and yards – upwards.

Unlike much of the rest of Canada, and many developed cities across the world, Toronto and Vancouver have seen a substantial increase in the portion of the population in their prime home buying ages, thanks in large part to immigration. It’s estimated the Greater Toronto Area alone sees 36,000 new households enter every year.

Simply put, there are more people aged 25 to 40 in these two cities and they have grown faster relative to other age groups, representing a bigger chunk of the overall population.

On the other end, many baby-boomers and empty nesters are now living longer and bucking the trend of downsizing. Instead of defecting to the city for low-maintenance condo apartments, most are choosing to stay put in their coveted and spacious detached homes – and not selling them.

“The long-standing myth that Baby Boomers will be abandoning their detached homes in droves at the turn of 65 remains just that—a myth,” reads the report.

So while more 25 to 40 year olds with families are on the hunt for detached homes, fewer baby-boomers are moving out and selling theirs, constraining supply and driving prices further upwards.

New Home Construction and Supply

The housing market can really be split into two segments – condos and houses. While new condo construction has seen a sustained boom that has kept up with demand, development of new low-rise family houses has dwindled to record lows.

Here’s a fact to put into perspective how few houses are being built: construction of new towns, semis and detached properties in the GTA plummeted from 15,000 in March 2006 to just 3,036 ten years later. That marks an 80 per cent drop.

Meanwhile, supply of newly built condos sat at a steady 12,280 in the same time frame.

“The stock of detached homes in Vancouver has hardly budged in two decades, and in Toronto, the number of single detached units completed in 2015 was the lowest since 1979!” notes the BMO report.

There are many reasons why construction of houses are at an all time low, from Vancouver’s geography to provincial and greenbelt policies in Toronto that gear construction away from homes with spacious lots to a more densified residential landscape.

It’s worth highlighting, it’s primarily high demand and low supply for single-family houses that is accounting for the huge double-digit real estate price jumps. In May 2016, the average detached home in the GTA jumped 18.9 per cent, while condos saw a 5.9 per cent year-over-year increase.

“While we’ve been sold stories of families holing up in condos to live a downtown lifestyle, backyards still rule for this age group,” wrote the economists, speaking on growing family home buyers.

The lack of newly built homes in the face of a growing home buying population does create an obvious winner in the tug-of-war between supply and demand.

“We have supply issues,” stated Bill Morneau, Canada’s Minister of Finance in the Canada Summit conference in June, reinforcing his point with the statement “there are 5.5 families for every single detached homes in Vancouver.”

Foreign Investors

Following in the footsteps of other major global metropolises such as New York and London, foreign investors are making their way into Canada’s largest cities – flowing money into both commercial and residential real estate.

With a hard lack of data available on the number of foreign investors buying into Toronto and Vancouver, the BMO economists did not pin-point specific reports but did state foreign investors have a “major impact” on the two cities housing markets.

However, Porter and Kavcic did draw a line between landed immigrants and pure investors parking money. “The former are not of particular concern given the economic contributions they bring, but the latter (think vacant homes in tight markets, potential risk of capital flight, etc.) do deserve the attention of policymakers.”

House Flippers

It’s been a growing suspicion that home buyers only interested in purchasing a property with the intent to quickly sell for a profit have been driving prices up. But currently, it’s only a “creeping” suspicion as hard data on house flipping is sparse.

The report states that in Vancouver, trends show the number of properties that are being bought and sold within 12 months is on the rise, suggesting growing speculation. However, numbers still sit well below the levels seen in the “height of prior booms.” BMO also stated the house flipping situation is far “milder” in the case of Toronto.