It's easy – comforting even – to blame foreigners for Canada's housing boom. But it's not really accurate.
Stories abound in Vancouver and Toronto of well-heeled Asians buying up real estate in prime neighbourhoods. No doubt many of the tales are true. But, as federal Finance Minister Bill Morneau recognized on Thursday when setting up a working group, Canada's real estate boom is a complex issue and one where it's important to dive deeper than anecdotes.
The evidence to date suggests that our domestic housing boom is the product of our own behaviour, not that of foreign buyers.
Consider the Teranet House Price Index, which tracks the movement of real estate prices in various cities. It bears eloquent testimony to the great run-up in Canadian home prices over the past decade. The index indicates that Toronto home prices have soared nearly 87 per cent since June, 2005, while Vancouver prices have rocketed 133 per cent over that same period.
Those gains are out of whack with inflation or economic growth. So it's natural to blame an influx of foreigners.
But here's the thing: The gains in Toronto and Vancouver aren't much different from the advances in cities that are far less of a magnet for foreign money. For instance, Winnipeg prices have shot up 97 per cent since 2005, while Quebec City real estate has advanced 74 per cent and homes in Hamilton have gained nearly 80 per cent.
It's difficult to square the big gains in Winnipeg, Quebec City and Hamilton with the narrative that says foreign money is driving Canada's real estate boom. Nothing against those fine cities, but none of them appears to be attracting huge numbers of rich Asian buyers.
The most global aspect of Canada's housing boom is its close resemblance to other episodes around the world. Many developed nations have also experienced real estate giddiness in recent years. Some – like the United States, Spain and Ireland – have seen their infatuations end badly. Others, such as Canada and Britain, continue their real estate love affair.
The key driver of these booms appears to be banks' growing reliance on mortgage lending. This has occurred across all developed nations and has resulted in a vast expansion of consumer credit – as well as problems if lending grinds to a halt.
Three economists – Òscar Jordà of the Federal Reserve Bank of San Francisco, Moritz Schularick of the University of Bonn and Alan Taylor of the University of California – laid out the facts in a compelling paper published this year called The Great Mortgaging: Housing Finance, Crises and Business Cycles.
They found that the share of mortgage lending in banks' portfolios has roughly doubled over the past century, from about 30 per cent in 1900 to about 60 per cent today. The boom has resulted in record-high levels of household debt in many developed countries.
"The blowing up and bursting of private credit booms centred on aggressive mortgage expansion reflects deep processes at work across all of the advanced countries," the economists wrote.
They warned that such credit booms make most developed economies far more fragile than in earlier generations.
Their findings are fascinating. And they serve as a reminder that the real problem isn't foreigners, but Canadians' own willingness to lend and borrow.