There are so many downsides to the untenable prices in the Canadian housing market that it’s hard to keep up. But to add another one to the list: The negative effect on mobility, including the ability of people to move for work.
Prohibitively expensive home prices, high interest rates and increasing rents are the antithesis to the movement of people. Many are stuck in this constipated housing market. If you have anything close to a decent spot, you’re not going anywhere. It’s a big part of what’s gumming up the system.
The Canadian Real Estate Association said 2023 saw the lowest annual level for transactions across the country since 2008, the period after the U.S. housing crash.
This is while demand is still soaring. But people are scared off by costs: The staying power of inflation means interest-rate cuts this year are likely but not guaranteed, and many homeowners still face higher rates on mortgage renewals. Even as the federal Liberals unleashed a flurry of housing announcements last week – including a promising Canada Rental Protection Fund, based on a British Columbia model meant to maintain stocks of affordable rental units – dour forecasts rained on their parade.
The Canada Mortgage and Housing Corp. market outlook said home prices could match peak levels seen in early 2022 by next year and reach new highs by 2026. Housing starts won’t be near what they need to be.
This means the disincentives to moving remain strong. If you rent in one of Canada’s major cities, a new abode often means financial pain. As CMHC chief economist Bob Dugan noted in a podcast, the dearth of supply really shows itself when someone moves out of one rental unit and someone new moves in.
“For Canada last year in non-turnover units, rent growth was closer to 5 per cent. But when you look at turnover units, it was closer to 24 per cent. And there are CMAs like Vancouver where in turnover units, the growth was actually closer to 33 per cent, and in Toronto closer to 40 per cent.”
Politically, this is why Conservative Leader Pierre Poilievre could make video after video about Canada’s “housing hell” and it would never stop resonating. There’s a personal toll to all of this.
There’s a toll on the economy, too. This housing crunch has to be viewed in conjunction with the alarms going off about labour productivity. In a speech last month, senior deputy Bank of Canada governor Carolyn Rogers issued an unusually stark warning about the country’s weak labour productivity. “I’m saying that it’s an emergency – it’s time to break the glass.”
Ms. Rogers said part of what Canada must get much better at is matching jobs with workers. She said too often new Canadians are working in jobs that don’t take advantage of their skill sets.
But the mismatch between workers and jobs is also worsened when people can’t afford to move to some of the most prosperous parts of the country (with Alberta being a notable exception, for now). Labour mobility contributes to productivity. But how do you get nurses or tradespeople to move to your town when there’s nowhere to live, or at least nowhere affordable?
We could use more data on the issue of labour mobility. In a 2017 Statistics Canada study, familial connections drove the desire of even unemployed Canadians to stay put. Financial reasons were less important.
But it’s now likely that financial considerations, namely housing, weigh more on Canadians considering their prospects in a different city or province. In the U.S., where there’s more data, there has long been concern about the geographic facet of “misallocation.” Economists say constraints on housing supply in the most productive U.S. cities (think New York and the San Francisco Bay Area) effectively limit the number of workers who have access to that high productivity. This ripples through the whole U.S. economy.
This was all happening before the pandemic. And the new culture of remote work means people don’t always have to move for a job. But housing costs have gone even higher, and in Canada, an astounding number of people are moving to the country. Canada’s population grew by nearly 1.3 million last year, the highest growth rate since 1957. Nearly 98 per cent of the growth came from international migration. Ms. Rogers said in her speech that Canada’s working-age population grew by more than 125,000 people in January, 2024, alone – the fastest month of work force growth on record.
It’s a doubled-edged sword, as newcomers both contribute to the economy and need a roof over their heads. But have no doubt: many of the people moving for work in Canada now are travelling across oceans, and they’re still struggling to find a home.
Kelly Cryderman