Why Are Houses So Expensive in Canada?

people spending money on their expensive house

The soaring cost of Canadian homes has been a hot topic recently, as many prospective homebuyers are struggling to afford even modest dwellings. According to statista.com, the average Canadian house price in 2021 stood at approximately 739,000 Canadian dollars

Sales in Greater Vancouver and the Greater Toronto Area, two of Canada’s most active and expensive housing markets, heavily influence the national average price. Excluding these two markets from the calculation cuts almost $118,000 from the national average price.1

Factors Contributing to High Housing Prices in Canada

Housing prices in Canada have been steadily rising for years. What factors contribute to this rise? Many people ask this question as they search for affordable homes and wonder how the market will continue to shift.

Several factors contribute to the high cost of housing in Canada.

Supply and Demand

The limited availability of land for development and strict zoning regulations limit the number of new homes being built, thus driving up prices. Also, Canada’s growing population, combined with low-interest rates, has led to a strong demand for housing, pushing prices higher.

Interest Rates

Low-interest rates make it easier for people to afford mortgages, which drives up housing prices. Low-interest rates make borrowing more attractive, leading some people into the real estate market who wouldn’t usually participate. 

Immigration

The influx of new immigrants to Canada increases the demand for housing, driving up house prices as supply struggles to meet this growing demand. This inflow is especially true in cities such as Toronto and Vancouver, which have seen some of the highest rates of immigration in recent years.

Foreign Investment

When foreign investors buy properties intending to resell them at a higher price, it can increase housing prices for everyone. As a result, foreign investment in Canadian real estate has been a significant factor contributing to high housing prices, particularly in major cities like Toronto and Vancouver.

Stricter Government Regulation

Government regulations, such as those limiting developers’ ability to build, can also contribute to high housing prices. Government regulations also affect zoning, slow down development processes, and create land constraints. 

High Rates of Urban Living

A high rate of urban living can contribute to soaring house prices in Canada in a few ways. One is that as more people move into metropolitan areas, the demand for housing increases, which drives up prices. Additionally, urban areas often have limited land for development, making it more challenging to build new housing, further increasing costs. Urban areas typically have more amenities like jobs, schools, and transportation services, which makes them more desirable places to live, thereby increasing demand and prices. In addition, urban areas often have stricter zoning regulations, higher land values, and development restrictions, limiting the supply of new housing and further driving prices up. 

Is Canadian Housing Overpriced?

Housing prices in Canada vary depending on location. Still, in some cities, housing prices have risen significantly in recent years, leading some experts to suggest that the market may be overpriced. But, again, opinions vary, and it is necessary to consider factors such as supply and demand, economic conditions, and government policies when assessing the housing market. It’s also helpful to consult with a real estate professional for a more detailed understanding of the housing market in a specific area.

Average housing prices in Canada

Housing prices depend on the location and market conditions. In recent years Canadian housing prices have been rising, particularly in major cities such as Toronto and Vancouver. Average home prices in these two cities alone drive up the national average.

However, prices can vary significantly depending on the region and local market conditions. Factors such as supply and demand, economic growth, and interest rates can all affect housing prices. Therefore, it’s essential to research and understand the local market conditions before deciding whether to purchase a property.

Why are houses so expensive in some Canadian cities?

Housing prices across Canada have been rising for decades, with some cities seeing particularly hefty increases in recent years. For example, in Toronto, Vancouver, and Montreal specifically, home prices have skyrocketed, making it nearly impossible for many people to buy a home and leading to an affordability crisis in these areas.

So why are houses so expensive in certain Canadian cities?

Several factors contribute to this issue. The most prominent of these are high demand coupled with limited housing supply. As more people move into major Canadian cities like Toronto and Vancouver looking for job opportunities and a higher quality of life, there simply isn’t enough housing available to meet their needs. This lack of availability drives up prices as buyers compete over a scant few properties.

What are the cheapest places to live?

If you’re looking for a place in Canada to call home but don’t want to break the bank, you’re in luck! Housing prices and other living costs determine the cheapest places to live in Canada, and there are still a few provinces with housing prices lower than the national average.

The current lowest housing prices are found in Saguenay, Quebec. This city offers some of the most affordable residential real estate, with average house prices at $215,000. This price is drastically lower than in major cities like Toronto and Vancouver, which can exceed One million dollars for an average house.

Saguenay also has a very low cost of living as groceries and transportation are both significantly cheaper than what you would find in bigger cities. And the city is full of skiing, swimming, and snowmobiling activities – they even have their own theater company!

According to the Canadian Real Estate Association, the following places in Canada also offer lower housing prices.2

  • Newfoundland and Labrador. Throughout the entire province of Newfoundland and Labrador, whose capital city is St. John’s (not to be confused with Saint John, New Brunswick), the average price of a home is $280,200. That figure represents a year-over-year increase of 10.8%.
  • St. John, New Brunswick, is the third cheapest place to buy a house in Canada, with an average home price of $294,900. 
  • Regina Saskatchewan. The average price of a home in Saskatchewan’s capital, Regina (also known as the Queen City), is $322,800, with a year-over-year decrease of 3.5%. 
  • Quebec City. The average price of a home in Quebec’s census metropolitan area (CMA) is $325,600. That figure represents an annual increase of 11.6%.
  • Trois-Rivières, Quebec, has an average home price of $330,431, with a year-over-year increase of 29.5%. 
  • Thunder Bay, Ontario. The average home price in Thunder Bay is $358,051 and a year-over-year increase of 12.5%.
  • Saskatoon, Saskatchewan. The average cost of a home here is $376,100, with a year-over-year increase of 5.4%.
  • Edmonton, Alberta. Edmonton’s average home price is $402,800. That figure represents a year-over-year increase of 8.4%.
  • Sherbrook Quebec. The average home price here is $435,525, with a year-over-year increase of 12%.

Why are houses in Canada more expensive compared to the US?

Housing prices in Canada have consistently been higher than in the United States since at least 1990. In recent years, Canadian housing prices have seen a much more significant increase than in the US, leading to further disparity between the two countries. This raises the question—why are houses in Canada more expensive than those across the border?

Various factors contribute to this difference, including market dynamics and regional influences. One key factor is government regulations that limit foreign investment and reduce supply. Additionally, taxes on real estate sales and mortgage interest are higher in Canada than in the US, making it more costly for Canadians to buy a home. On top of this, land availability is an issue due to geographical constraints imposed by bodies of water such as oceans or lakes and provincial boundaries.

But what if you didn’t have to hunt down the cheapest real estate in Canada? What if there was a way to make your mortgage payments work for you and be tax-deductible?

There is a way – it’s called The Smith Manoeuvre.

Turn Your House Purchase Into An Investment with The Smith Manoeuvre.

The Smith Manoeuvre is a creative, legal, financial strategy designed for Canadian homeowners to convert the non-deductible debt of a house mortgage to the deductible debt of an investment loan. This strategy simultaneously ensures the speedy elimination of a non-deductible mortgage while building a free-and-clear non-registered ‘personal pension portfolio’ and enjoying substantial tax refunds annually for many years. 

In his book, Master Your Mortgage for Financial Freedom, Robinson Smith describes how the typical Canadian homeowner who implements The Smith Manoeuvre could realize a benefit of approximately $400,000 or more over the life of their 25-year mortgage.

Since the strategy’s development, Canadians have been using The Smith Manoeuvre to keep more of their money to reduce home ownership costs and improve their financial security.

Read the book and use The Smithman Calculator to find out what The Smith Manoeuvre can do for you.

1 Canadian Real Estate Assc.

2 Mortgage Industry Guides

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Robinson Smith

Financial educator, speaker and best-selling author of Master Your Mortgage for Financial Freedom • How to Use The Smith Manoeuvre to Make Your Canadian Mortgage Tax-Deductible. AboutSpeakingLinkedIn

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