NEWS
03/31/2016 14:37 EDT | Updated 04/01/2017 01:12 EDT

Vancouver, Toronto home buyers not 'reckless,' just numerous

First-time buyers looking to take the home-ownership plunge in Vancouver and Toronto, Canada's two hottest markets, are far from "reckless," says National Bank chief economist Stéfane Marion.

Instead, the prices they face reflect the rapid growth of employment in both cities and the fact that the population of young people aged 20 to 44 is growing, he says in a new report.

Plenty of analysts are saying these markets are in bubble territory, and buyers risk losing their money. Some even say the markets are hot, because of Chinese buyers snapping up property as a safe investments. Marion dismisses these concerns.

It's wrong to think the rapidly rising housing prices in these two markets are the result of speculation, he adds.

Instead, housing prices — which rose 27 per cent in the year to February in Vancouver and 11 per cent in the same period in Toronto — are being driven higher by an influx of people who are settling in the city.

"The working age population is growing about 70 per cent faster than the national average in Vancouver and Toronto on the back of strong inflows of highly educated immigrants who can more easily integrate into the job market," he wrote in the report.

Marion argues that employment surged by 5.5 per cent in Toronto in 2015 and 4.4 per cent in Vancouver.

Underlying force

That helps attract people aged 20 to 44, the stage in life when people get jobs, put down roots and form households.  

"The underlying force for housing demand is household formation," Marion said.

Canada is lucky to have one of the fastest increases in household formation in the OECD in recent years.

While most developed economies are seeing a decrease in their population aged 20-44 over the next five years, Canada's is set to grow by 2.8 per cent.

Compared with most world cities, apartments in Vancouver and Toronto may not even be overpriced, he said.

The price-to-income ratio for a 90 square metre (1,000 square foot) apartment downtown is lower than Sydney and San Francisco and much lower than New York, Rome or London.