Photo: James Bombales
Canada’s major cities are set to see a surge of immigration in the coming years. And according to one economist, it’s likely to put an upward pressure on home prices.
“Home prices, home building and borrowing: In a similar vein, strong population gains will also drive housing activity,” writes BMO senior economist Robert Kavcic, in a recent note.
Kavcic points out that the influx of more than 500,000 new residents in the past year translates into roughly 180,000 to 200,000 households, who will then require the same number of housing units.
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“Our estimate of the baseline demographic drive for housing starts has also shifted higher…and with population inflows still so heavily concentrated in the major cities, it has also reinforced upward pressure on home prices in the priciest and more supply concentrated markets,” he writes.
That means that when new would-be homeowners make their way into the Greater Vancouver and Greater Toronto areas, the already tight markets will be squeezed further, with home prices rising out of range for many.
Kavcic’s comments are echoed by TD economist Omar Abdelrahman, who writes that, while the housing market will likely remain cool for the immediate future, price pressures are already starting to develop in major urban centres.
“With continued monetary policy tightening on the horizon and increased macroprudential regulations, the expectation is that housing will continue to slow, albeit gradually,” writes Abdelrahman. “Price pressures are also starting to manifest, with Statistics Canada citing the impact of rising lumber prices on its New Housing Price Index (NHPI) measure, which moved up 0.1 per cent on the month in June.”
Of course, there are other factors that could weigh on housing prices in the near future, despite a swell in population. The Bank of Canada hiked the overnight rate to 1.50 per cent in July, and is widely expected to do so again before the end of the year, which could put a damper on housing activity.
“We’re in a rising interest rate environment, and that affects affordability, what buyers are able to purchase,” Canadian Real Estate Association chief economist Gregory Klump told Livabl earlier this month. “So we’ll have to see what effect that has on the market in the coming months.”