Why Are Homes in Canada So Expensive?

Housing costs in Canada are a prominent public concern, with many facing challenges securing affordable homes. As of June 2025, the national average home price was approximately $691,643, with the benchmark price for a typical home around $698,000. Nearly four out of ten Canadians expressed worry about housing affordability in spring 2024. Despite modest improvements in early 2025, significant hurdles remain for homeowners and renters.

Demand-Side Pressures

A significant factor contributing to elevated home prices in Canada stems from robust demand, driven by various demographic and economic forces. Population growth, particularly fueled by immigration, consistently increases the number of households seeking residences. This expanding population creates sustained pressure on the existing housing supply, especially within major urban centers that serve as primary destinations for newcomers.

Historically low interest rates made mortgages accessible and amplified purchasing power, encouraging more individuals to enter the market. While rates have since increased, this prolonged period significantly escalated home prices.

Real estate’s appeal as an investment also contributes to demand-side pressures through investor activity and speculation. Both domestic and international investors are drawn to the Canadian housing market, viewing it as a stable and attractive asset. This investment activity can lead to a reduction in the number of homes available for primary residence, intensifying competition and driving up prices for prospective owner-occupiers.

The increasing concentration of jobs, services, and cultural amenities in large metropolitan areas further exacerbates housing demand. Urbanization trends mean that major cities are highly desirable places to live, leading to intense competition for limited housing stock within these regions. This desirability places immense pressure on available properties, contributing to the elevated prices seen in Canada’s most sought-after urban environments.

Supply-Side Constraints

Limitations in the availability of new housing units significantly contribute to the upward trajectory of home prices in Canada. Geographical features, such as proximity to large bodies of water or mountainous terrain, naturally restrict the amount of land suitable for development, particularly in highly populated urban areas. Furthermore, established urban growth boundaries can legally limit expansion into surrounding undeveloped land, further constraining the physical space available for new construction.

Rising construction expenses impact housing supply and affordability. Increased costs for building materials and labor shortages contribute to higher prices and project delays, limiting new housing stock.

Restrictive zoning regulations and complex development approval processes pose barriers to increasing housing supply. Zoning laws often favor single-family homes or mandate large minimum lot sizes, which limit the ability to build denser, more affordable housing options like townhouses or multi-unit dwellings. The municipal approval process for new developments can be lengthy and complex, sometimes taking several years, which delays construction and adds to overall project costs.

Inadequate or aging infrastructure in certain regions can also limit the capacity for housing expansion. Sufficient water, sewage, and transportation networks are necessary to support new residential developments. Where these essential services are lacking or require significant upgrades, the ability to build new homes can be severely hampered, indirectly restricting the overall housing supply.

Economic and Policy Influences

Broader economic conditions and governmental policies play a role in shaping Canada’s housing market. A strong economy, characterized by low unemployment rates and rising incomes, generally increases consumer confidence and the capacity of individuals to purchase homes. This economic stability translates into increased demand for housing, which can contribute to upward pressure on prices.

Federal, provincial, and municipal taxes influence market dynamics. Property transfer taxes add to home acquisition costs. While primary residence capital gains are exempt, investment property gains are taxable, influencing investor decisions. A lack of anti-speculation measures or incentives for affordable housing can allow market forces to drive prices higher.

The perception and reality of global capital flows, particularly foreign investment, also influence the Canadian real estate market. While the direct impact of foreign buyers can be localized and debated, the flow of international capital seeking safe and profitable investments can contribute to market sentiment and pricing, especially in desirable urban centers. This influx of capital can add to the competition for properties.

The proliferation of short-term rental platforms, such as Airbnb, has an impact on the long-term housing market. Properties converted to short-term rentals reduce the available supply for long-term residents, putting upward pressure on rental prices and potentially incentivizing investors to purchase properties specifically for this purpose. This shift can further tighten the housing market by removing units that would otherwise be available for permanent occupancy.