Source: t6ix Economics calculations, Statistics Canada, CMHC.

Over the past several years, housing prices in Canada have surged to unprecedented levels, with a significant acceleration over the last five years. Demand-side pressures, particularly driven by rapid population growth, have played the dominant role in this price surge. Supply-side factors, including rising input costs and insufficient housing completions, have contributed but are not sufficient to explain the magnitude of the increase.

Population-Adjusted Projections suggest that if population growth had been kept to a 1% annual rate, in line with historical trends, housing prices would have risen at a much slower and more sustainable pace. Policymakers need to recognize that both demand and supply factors must be addressed to stabilize the housing market and ensure long-term affordability for Canadians.

Key Highlights

• Rapid Population growth through increased immigration and temporary residents has driven much of the demand, placing significant pressure on housing prices, particularly in urban areas. 

• Housing completions have increased, they remain insufficient to meet demand, creating a supply-demand imbalance.

• Input costs, although rising, have not been the primary factor behind housing price inflation.

• Population-Adjusted Projections show that slower population growth would have alleviated some of the extreme price increases seen in recent years.

• While focusing on supply-side remedies can help, addressing the broader demand pressures is crucial. Ignoring this is akin to treating the symptoms without addressing the underlying cause.

Data Highlights

• Shelter costs have more than doubled in recent years. The CPI Shelter Index grew at an annualized rate of 4.5% from 2020 to 2023, more than double the 2.0% growth seen from 1990 to 2019.

• Housing prices have surged. The New Housing Price Index (NHPI) increased at an annualized rate of 3.9% during 2020-2023, more than twice the 1.8% observed between 1990 and 2019.

• Population growth remains a key driver of demand, averaging 1.9% per year from 2020 to 2023, nearly double the long-term average of 1%. Excluding 2020, growth surged to 2.6% per year, intensifying demand that continues to outpace supply.

• Housing completions have surged but remain insufficient. Completions grew at an annualized rate of 5.4% from 2020 to 2023, a sharp contrast to the 0.2% growth seen from 1990 to 2019, but still lag behind demand.

• Rising material and construction costs are contributing to higher housing prices, with Raw Materials and Building & Services costs increasing at 6.9% and 5.8% annualized rates, respectively, from 2020 to 2023.