Canadians Have High Debt Loads, and Most of It Is for Housing

Of the $2.48 trillion of debt carried by Canadians, $1.66 trillion is on mortgages
By Lee Harding
Lee Harding
Lee Harding
Lee Harding is a journalist and think tank researcher based in Saskatchewan, and a contributor to The Epoch Times.
September 21, 2021 Updated: September 21, 2021

Canadians are spending record amounts on housing, putting themselves at much higher risk than before should home prices collapse or interest rates rise.

Canada’s seasonally adjusted annual rate of residential investment, which includes home construction, significant renovations, and ownership transfer costs, hit $249.3 billion in the second quarter of 2021, with $67.9 billion spent during the quarter itself, according to Better Dwelling. Both amounts were new records and represented more than 10 percent of gross domestic product.

Meanwhile, Canadian households spend a huge amount of income on debt payments, based on data from the Bank of International Settlements. Canada’s household debt service ratio in Q4 2020, at 12.4 percent, was much higher than that of any other G7 country, outpacing the UK’s around 9 percent and the 7.6 percent of the United States and Japan. Of the nearly $2.48 trillion of debt carried by Canadians in Q4 2020, close to $1.66 trillion is on mortgages, representing around 67 percent of the total.

Ian Lee, a professor of business at Carleton University in Ottawa, was a lender at a major Canadian bank for nine years. He told The Epoch Times that for decades, Canadians have valued home ownership more than most of its international peers.

“We’ve had a deep attachment to owning our own home at the very core—what I would argue is a long-term and enduring core value,” Lee said.

“The reason that we are so indebted is because we are so committed to buying a home, and house prices have risen so rapidly compared to other countries.”

Canadian housing prices rose for 24 quarters through to Q1 2021, according to a U.S. Federal Reserve index that tracks housing markets seeking to identify bubbles. Canada’s is the second-longest-lasting bubble in the G7, beat out by Germany by just one quarter.

Insufficient Housing Supply

A Scotiabank report in May showed that the number of housing units per 1,000 Canadians dropped from 427 in 2016 to 424 in 2020. Although the construction of about 100,000 more homes over that period would have kept that ratio stable, Canada would need 1.8 million more homes to match the G7 average of 471 homes per 1,000 residents.

Despite ample demand for housing, supply has not kept pace. A recent RBC report showed that August marked the first increase in homes listed for sale since March. Home prices grew 21.3 percent year-over-year through August as the MLS Home Price Index rose to $736,600.

Lee said the high prices created by insufficient supply could be rectified if home builders faced less onerous regulations.

“Municipalities have the greatest control over housing in terms of bylaws, in terms of building permits, and so forth. And of course, in the approval of raw land to be subdivided into housing projects for development, [which] have slowly but steadily decreased the supply,” he said.

“Environmentalists and others who want to limit the growth of the city, of any city, they argue we’ve got to stop urban sprawl: ‘It’s bad for the environment. It’s bad for society.’ ‘Urban sprawl’ is merely the rebranding or pejorative term for population growth.”

The most recent Demographia Intrernational Housing Affordability report, co-published by the Urban Reform Institute and the Frontier Centre for Public Policy, said housing prices were three or less times the annual income in Canada until the late 1980s or 1990s. In 2020, it was over five times the annual income in Ottawa and Montreal, 9.9 times in Toronto, and 13 times in Vancouver.

Demograhia principal Wendell Cox agrees with Lee as to where the problem lies.

“That’s all regulatory. It’s all planners who think, oh, they’re doing great things because they want cities to look a particular way. I could go on forever, but it’s all regulations,” Cox said.

‘The Biggest Problem’

The Demographia study of 92 major housing markets in eight countries—Canada, Australia, China (Hong Kong only), Ireland, New Zealand, Singapore, the UK, and the United States—found Vancouver to be the second-least affordable city and Toronto the fifth-least affordable. Cox says property values are so disproportionate to local incomes that he can only conclude relatives are helping homebuyers with their mortgages.

“The big problem you have, as far as I’m concerned, is when you think about the fact that 25 percent of Canada’s GDP is out of the Greater Golden Horseshoe, you’ve ruined the whole thing. There’s all sorts of research that says the housing market is crucial to maintenance of a decent national economy,” Cox said, noting that high housing costs leave less disposable income to spend elsewhere.

Canadian household debt-to-income ratios have risen almost every year this century. In 2006, the debt-to-income ratios of Canadians and Americans were roughly equal at 136.4 and 135.3 respectively. In 2018, Canadians had a 174.9 ratio and Americans 103.1, according to Statistics Canada.

Canadian households’ net worth reached $12.9 trillion in Q4 2020, up $1.2 trillion, or 10.5 percent, from the end of 2019. Lee said that doesn’t prevent the risks carried by those who have many years and a large principal left on their mortgages.

“The biggest problem, if I could put it that way, is that young people and new homebuyers become much more deeply indebted than before, and so they’re more vulnerable to loss if they lose their job. It’s not just the real estate market going down—what if interest rates go up 2 percent?”

Lee Harding
Lee Harding is a journalist and think tank researcher based in Saskatchewan, and a contributor to The Epoch Times.