No Canadian Housing Crisis Because Aussies Say So ?

For clues to Canada’s housing future, look to Australia


Special to The Globe and Mail

Let’s put aside, just for a minute, the idea that there is a housing bubble in Canada.

It there is a housing bubble, then we know it will burst at some point, and that the fallout will be singularly unpleasant. After all, we watched the bursting of the bubble in the U.S. take place in real time, just as if it was being broadcast on some kind of gigantic, high-definition television screen. We know how that story ends.

What about the other story though – the one where the rise in Canadian housing prices makes perfect sense, and what’s more has longer to run? What exactly is going to be the fall out if home prices just keep rising and rising? To understand that case, the economy to look at may be Australia rather than the United States.

Australia, a country whose economy is often compared to Canada’s, has been in the midst of a commodity-driven boom. That is something that is not without its dark side. On the plus side, lots of wealth gets created and jobs are plentiful. On the negative side, home prices get driven up to stratospheric levels. Actually, that’s not a negative at all if you are a homeowner, but it is a nightmare if you are thinking of buying.

As of the third quarter of 2011, the average house in Australia cost 6.7 times the country’s gross annual median household income. In contrast, a home in Canada cost just 4.5 times the median. The U.S. was a bargain at 3.1 times (all data are from a study by U.S. consulting company Demographia). Individual markets in Australia vary of course, just as they do in Canada, but the big picture is that new homeownership, particularly close to the larger cities, is getting pretty elusive to those who are in anything but the highest income brackets.

As Australian housing prices have climbed, new buyers are increasingly choosing more modestly priced condominiums over single-family homes, and developers are obliging by increasing the stock. For the three months ended September, 2012, 35 per cent of new housing construction in Australia was in multiple units, up from 29 per cent five years early and 21 per cent two decades ago. It is sort of a New York or London-type shift. In those cities, no one but the very wealthy can reasonably expect to buy single-family homes in or near the city core, so development is concentrated in multiples.

So how close is Canada to seeing city development zoom as a result of high housing prices? Well, for sure there is room for more people in our cities, at least by international standards. According to the 2011 census , Toronto had 945 people per square kilometre, Calgary 238, and Vancouver 803. Sydney, Australia, had 991 people per square kilometre, which is also pretty modest compared to 10,425 in New York and 5,199 in London.

Canada’s cities have of course already seen a condominium boom, one so pronounced that policy makers have expressed concern. Bank of Canada Governor Mark Carney has specifically mentioned Toronto’s condominium market, citing the fact that speculators have bid up prices too much and that supply may be increasing too quickly. That may be true, although the Australian case would argue against it. In Toronto, much of the building seems to have been in smaller units, and it could be that there has been some overbuilding in units catering to singles or small family units (although demographics would argue for long term demand for smaller units). In the Australian case, however, the new building seems to also include townhouses, which presumably cater to larger households.

It comes down to this: If housing prices keep rising, then new buyers are going to have to make increasingly difficult calls. One decision might be to commute for longer to get to the city centre, a decision that has already spurred the rise of further out suburbs. After all, Milton, Ont. (located about 40 km from Toronto’s city centre) was the fastest growing city in Canada between 2006 and 2011. The other choice is to embrace the idea of less space and stay in the city. If more buyers go with the latter choice, the downtown building boom may have only just begun.

Linda Nazareth is the principal of Relentless Economics and senior fellow for economics and population change at the Macdonald Laurier Institute. Visit her at

Australia moves up to fourth most overvalued housing market but bubble risk subsides

Australia has moved from fifth to fourth most overvalued global property market but the overall risk of a housing bubble has subsided, according to the internationally authoritative, but debatable latest The Economist magazine global housing index.

The latest index records only modest gains of 2.6% in Australian house prices over the past year to March (using ABS data), ranking the country 10th best performing global housing markets out of 18 over 2012 with the top performing market being Hong Kong (24.5%) followed by Brazil (12.8%), South Africa (11.1%) and India (10.7%).

Last year, the index had house prices in Australia down 4.8% ranking it 18th best housing market out of 21 global housing markets rated by the magazine.

The magazine warns that housing markets are “notoriously prone to boom and bust” and uses “two yardsticks” to judge whether house prices are at sustainable levels.

“One is the ratio of prices to disposable income per person, a measure of affordability.

“The other is the price-to-rent ratio, which is analogous to the price-to-earnings ratio used for equities, with rents going to landlords (or saved by homeowners) equivalent to corporate profits.

“If these gauges are higher than their historical averages, property is overvalued; if they are lower, it is undervalued.”

The Economist calculates that Australian house prices are overvalued 24 times against average personal disposable income and 44 times against rents.

Last year the economist said Australian house prices were 28 times overvalued against personal disposable income and 38 times against rents.


On the personal income housing affordability measure, Australia ranks fourth behind France (34), the Netherlands (33) and Canada (32) while on a rents measure, Australia ranks third behind Hong Kong (81) and Singapore (57).

The Economist’s index from last year (pictured below) had Australian housing ranked fifth most expensive on the personal income measure and seventh on the rents measure.


Using these two measures, it warns that Canada’s housing market is “especially vulnerable” with a “large bubble now looks set to burst” with residential sales down 15% year-on-year and a steeply declining appetite among Canadians to buy a home in the next two years.

In Australia, surveys regularly report a strong appetite and desire for property, though the first-home buyer market remains subdued.

Looking at the performance of housing markets since the GFC (the fourth quarter of 2007) suggests that Australian house prices have risen relatively modestly  (up 12.2%) compared rampant – and perhaps unsustainable – markets like Hong Kong, where they have more than doubled (109.4%) and India (88.8%), where they are close to doubling in value.

Australia’s housing market performance since the GFC is also well below that of Singapore (24.8%), China (20.4%) and Canada (18.3%).

In comparison, the house price bubble has truly burst in Ireland with house prices on the Emerald Isle down 50% since the GFC followed by Spain (-26.5%), the US (-20.8%)

The Economist writes of a “patchy” recovery in global housing markets over the past year with house prices rising in 12 out of 18 markets.

It notes generally strong property markets in South Africa as well as two of the big emerging economies, Brazil and India.

This article first appeared on Property Observer.

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