An underperforming housing market is usually an indicator of a country-wide recession, as emphasized by a research report recently released by Bank of Montreal (BMO). It is therefore alarming that the weakest components of Canada’s economy lately have been those related to the housing market. Data from BMO’s senior economist reveals a correlation (but not necessarily causation) between the performance of the economy and the housing market and following the release of the report, the Canadian dollar fell by 0.4 U.S. cents. Among the affected cities, Toronto and Vancouver had relatively poor years in 2018, but surprisingly, Montreal’s market boomed and they are now poised to surpass Vancouver as Canada’s second-biggest housing market, behind Toronto.
Much of Toronto and Vancouver’s previous success in the housing market was due to high prices and luxury home purchases, many of which were made by foreign investors. However, new legislation and provincial policy measures, such as regional taxes on property purchases targeting foreign buyers in the Toronto and Vancouver luxury housing markets, are provoking a reduction in the sales of these more expensive properties. In addition, this contributes to a heightened demand for similar properties in Montreal, especially for downtown condo properties. Investors in Montreal are buying multiple presale condo units to benefit from a bulk purchase discount. A Royal LePage press release shows that luxury detached home and condo sales in Montreal surged 21.4 percent and 28.9 percent, respectively in 2018. Condo sales, however, are not the only reason that Montreal is experiencing a boom in its housing market.
After a long period of low sales, Vancouver only remains the second biggest housing market due to its property prices. A benchmark home in Vancouver in 2019 costs $1.02 million. Compare that to a similar Montreal benchmark home which costs approximately $350,000. Cheaper prices in Montreal have induced a higher volume of property transactions. Moreover, stricter mortgage rules and higher interest rates for more expensive homes has further stymied Vancouver’s market, elevating Montreal to the closest level it has been to Vancouver since 2008.
A massive 60 percent increase in foreign students in Montreal over the past five years has augmented the shifting of the rental market.
Perhaps the biggest driving force of Montreal’s success in the housing market is the increased demand in rental properties. A growing desire to rent rather than own properties has transformed the mentality of many Montreal residents who now prefer to be “tenants by choice”. To facilitate a heightened demand, investors are prioritizing the development of rentable units to replenish a diminished supply. Rental vacancy of units in Montreal has gone from 4 percent in 2015 to 2 percent in 2019, as more of the Montreal community are voluntarily becoming tenants, especially students. A massive 60 percent increase in foreign students in Montreal over the past five years has augmented the shifting of the rental market. Foreign students usually look to rent during their stay at university before returning home, and the prestige of Montreal’s universities has been attracting a surging number of international students.
If Montreal were to continue their rapid growth and investment in their housing market, the city may very well soon surpass Vancouver as Canada’s second largest housing market. Multiple factors have hindered Vancouver’s growth, while simultaneously facilitating the ability of Montreal’s market to flourish. While this is good news, will a booming housing sector in Montreal increase housing prices to levels of unaffordability?