Canada’s national statistics agency revealed a surprise in the latest census drop. BMO Capital Markets has found that Canada’s housing stock has grown faster than its population. Robert Kavcic, a senior economist at BMO, pulled historical data and found that this was the case for two decades. The bank acknowledges the long-term supply problems, but believes that the magnitude of the price increase is exaggerated. A speculative mindset that has accelerated with rising prices is the main driver.
Canadian residential real estate has grown faster than the population
The number of residents of Canada has grown faster than the population. The latest census shows that the population increased by 5.2% from 2016 to 2021. On the other hand, the number of private residences increased by 5.7% over the same period. “Not to sting the bear, but there was a curious fact in the 2021 census numbers,” Kavcic says just before stinging the bear.
“In Ontario, the total number of people grew by 5.8% between 2016 and 2021. But the number of private dwellings in the province grew by even more than 6.2%,” he points out. Ontario saw an increase in population, but housing construction grew even faster.
Other regions have seen price growth mainly concentrated in urban areas. In this case, it can be said that it depends on where the housing has developed. This is what makes the situation a little more curious in Ontario. The province is seeing prices rise across the board, with limited inventory to sell. It’s not a recent phenomenon, but the bank says supply has exceeded population for decades.
Canada has seen the number of dwellings per person increase steadily
BMO found that Ontario’s housing stock grew faster than population for two decades. “In fact, the number of dwellings per person has been steadily increasing over census periods dating back to 2001,” Kavcic says.
Housing in Ontario per 1,000 people
Source: BMO.
Canada is now seeing the most housing delivered since the 1970s, and that is with supply chain delays. There’s plenty more to come in the not-too-distant future, especially in Ontario. “And let’s remember that there are also a record number of houses currently being built,” he adds.
Comparing Canada’s housing to former G7 countries is a bad catch
Housing in Canada is often compared to its G7 peers, but that only works for certain issues. The number of dwellings is not one of these problems, according to the bank. BMO addressed the fact that Canada has the lowest housing stock per person in the G7, a point often raised by the industry. Although this has been true for some time, prices have only recently started to accelerate. The bank says it has to do with the age of the Canadian population.
“We really need to look at the 18+ population, especially when doing cross-country comparisons,” Kavcic says. Adding: “Canada is young compared to the G7, so our housing stock per person should be lower… This data will come in the next census wave.”
BMO clarifies — they’re not saying Canada doesn’t need more housing. The country must continue to build to avoid a deficit, especially with rapid population growth. The surge in price growth is more a result of speculation exacerbated by the Bank of Canada (BoC).
“We recognize longer-term issues on the supply side, but volume is far too high on that front. Meanwhile, the psychology of speculative demand continues to develop,” the research note concludes.
A few days ago, BMO estimated the excess demand created by the overly lax policy of the Bank of Canada. Central bank policy generated billions in excess sales, creating higher than normal demand. As rates rise, they see demand fall and inventory rise. After all, few people sell an asset while its price is skyrocketing, especially if it’s tens of thousands of dollars a month. They see the inventory problem being resolved very quickly after interest rates rise.
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