The Cleveland Fed has written why it believes Canada's housing market did not collapse the way America's did. They conclude that it was because lending standards were not as lax in Canada as they were in America, and financial "innovation" had not been adopted in Canada to the same extent as it had been south of the border, though that may have been because Canada tends to adopt innovation a few years after the States, and thus Canada may have been somewhat "lucky" in that the US market collapsed before Canada could fully adopt American financial "innovation."
I expand on why I believe Canada's housing market has behaved differently than America's here.
I believe one reason for high house prices in Canada is tax benefits for home manufacturers, versus none or tax penalties for those who build apartments.
Very few apartments have been built in the last decade. The vacancy rate in many places in Canada is very low. This creates a high demand on houses, which are being converted to duplexes and rented to help pay for the high mortgage payments. Naturally, high demand creates high prices.
Plus those looking for housing have few choices, condos, houses or very scarce apartments.
The Canada federal government needs to address the tax discrepancy so that it will be financially desirable for more rental apartments to be built, lowering demand on houses. With lower demand comes lower prices.
Posted by: michael | January 03, 2010 at 05:55 PM