Queen's University

Has Canadian house price growth been excessive?

Graph: Real rents in Canada and the US, from project by Queen's researcher Dr. Huw Lloyd-EllisThe dramatic rise in the ratio of Canada's average house price to average rent has led to speculation that there is a bubble in the Canadian housing market. Others have argued, however, that the currently high level of house prices may be rationalized by the low cost of financing, given the decline in interest rates over the last two decades. In this article, we assess these arguments through the lens of a simple asset pricing model applied to city‚Äźlevel data. We quantify the extent to which excess growth in Canadian house prices depends on the nature of the current regime governing real interest rates, expectations of rent growth in different cities and variations in property taxes. (Read More)