Canada's unprecedented housing crisis could be a warning sign for the US

The housing affordability crisis in the US is bad — but America's neighbors to the north may have it worse.

The housing affordability crisis in the US is bad — but America's neighbors to the north may have it worse.

The average home value in Canada has more than doubled since 2011. The country is also almost certainly heading toward a recession — if it's not already in one — and the housing market is partly to blame, economists say.

Demand has raced ahead of supply. The country simply isn't building enough housing. Mosche Lander, a Concordia University economist, argued that city governments, which largely control housing policy, were "biased towards homeowners and not towards renters," supporting policies that limit homebuilding and keep home values elevated. Investors pouring money into real-estate speculation haven't helped. And record population growth from immigration has only added to demand.

This might sound familiar. The combination of a housing shortage, rising interest rates, and investor speculation have all contributed to a severe housing-affordability crisis in the US, as well. "It's similar, but worse" in Canada, said Mike Moffatt, a senior director at the Smart Prosperity Institute at the University of Ottawa.

After more than 20 years of low interest rates, which pushed housing prices up, Canada's central bank recently raised its benchmark interest rate to a 22-year high of 5% in an attempt to control inflation. Rising mortgage rates are particularly painful in Canada because the standard home mortgage has to be refinanced after five years and fully paid back after 25 years. This is a key difference between the US and Canadian housing markets since the standard US homeowner gets a 30-year fixed-rate mortgage, protecting them from rate increases for decades.

Partly as a result of this, Canadians are deeply in debt. The country has the highest household debt as a share of gross domestic product in the G7 — and 75% of it is from mortgages. Like Americans, Canadians are increasingly worried about housing costs. Recent polling indicated inflation was their top concern, closely followed by housing.