Cooling housing market shows short supply didn’t fuel COVID price surge: BMO economist
Global News
BMO's top economist is calling into question the role of a constrained housing supply in fueling home price growth during the COVID-19 pandemic.
Canada’s massive run-up in housing prices during the COVID-19 pandemic had more to do with investor demand and rock-bottom interest rates than oft-talked about concerns of insufficient housing supply, according to the Bank of Montreal’s top economist.
Doug Porter published a short note Wednesday morning exploring the surging home prices seen in Ontario cities such as Chatham-Kent over the two years of the pandemic.
Home prices there ballooned roughly 90 per cent in that time, Porter wrote, contrasting the city with Edmonton, which experienced more moderate growth during the pandemic.
Though the value of homes in Chatham briefly surged past those of Edmonton, prices have seen a sharp decline in the southwestern Ontario town since the Bank of Canada began hiking interest rates earlier this year.
Porter concluded that with little change in the supply of housing units in towns like Chatham over the course of the spring, while rising interest rates dampen buyer demand, the ultimate cause of higher prices during the pandemic was not a lack of homes to go around.
“Our view, and I know this is not a popular one, is that this was more of a demand story than a supply story,” he told Global News in an interview Wednesday.
Canada’s housing supply gap is regularly raised as a barrier to affordability in Canada’s residential real estate market.
The Canada Mortgage and Housing Corp. (CMHC) released a report in June projecting that, when it comes to the goal of affordable homes for all residents, Canada will be short 3.5 million units by 2030.