OTTAWA (Reuters) - Hefty rises in house prices in Toronto and Vancouver, driven by strong demand, have not been met by sufficient new supply from builders, a report from Canada’s federal housing agency showed on Wednesday.
The study was done by the Canada Mortgage and Housing Corporation (CMHC) to look at what was behind rapid price gains in major Canadian cities that have led some local authorities to take steps to try to cool markets.
The study found that three-quarters of the 48 percent price gain seen in Vancouver from 2010 to 2016 was attributable to economic factors, including increases in population, jobs and income, as well as low mortgage rates.
But in Toronto, where prices were up 40 percent over the same time frame, just 40 percent of the gain was attributable to fundamentals. The increased wealth of residents in Toronto also explains some of the price gains, CMHC said.
The report, which also looked at Montreal, Calgary and Edmonton, found that the supply response has been weaker in Toronto and Vancouver than the other cities.
Proportionally, more condominiums have been coming onto the market in those two cities than single detached homes, partly due to availability and price of land. Investor demand for condos has also increased, the report said.
“What seems to be happening is there’s a supply response in terms of condominiums, but the prices for single detached homes are going up,” said Aled ab Iorwerth, CMHC’s deputy chief economist. “So there is a weaker supply response there in the overall housing market.”
A separate report from CMHC released on Tuesday found that foreigners living in Canada boosted their share of mortgages in the last two years, as young home buyers were bankrolled by their parents overseas.
A backlash against foreign investors, particularly those from mainland China, has spurred provincial governments to impose a foreign buyers’ tax in Vancouver in 2016 and in Toronto in 2017, although data shows offshore buyers account still only for between 5 and 10 percent of the market.
CMHC said on Wednesday that more than half of recent home buyers in Toronto and Vancouver believe foreign buyers are influencing home prices.
Although Toronto’s housing market pulled back last year after the Ontario government’s moves, data earlier this month suggested prices have stabilized.
Reporting by Leah Schnurr, Editing by Rosalba O'Brien