In December, Aaron Moore bought an unremarkable three-bedroom house in the Toronto suburb of Brampton and, after throwing on a fresh coat of paint and laying down new hardwood floors, put it right back on the market.
In March, he found a buyer. The price tag: C$810,000 (about $649,000), a stunning 28% more than he had just paid.
Normally this kind of quick-buck speculation would be interpreted by economists, policy makers and finance types as the indisputable sign of a housing bubble. But Moore has been a professional house flipper in the Toronto area for more than a decade now, during which a seemingly endless line of illustrious doomsayers have taken the other side of his bet on real estate in word and deed, only to be proven wrong.
One of the earliest was Mark Carney, then Canada’s central bank governor but soon to take over the Bank of England, who called the country’s reliance on housing wealth “ unsustainable” back in 2012. Then came the wave of American financiers, one after the other, whose collective bet on a Canadian housing crash got its own nickname, “The Great White Short.” Many of them, like Steve Eisman of The Big Short fame, applied the lessons they had learned in the bursting of the U.S. housing bubble years earlier.
When Covid-19 hit, even Canada’s own national housing agency seemed sure this was finally the end, predicting a dive in home values ranging from bad to catastrophic. But instead the market went on to another record year, and the housing agency’s leader had to take to Twitter to say they’d gotten it wrong, shortly before being replaced.
Through it all, Aaron Moore just kept on buying and flipping.
Standing in the Brampton house days before he listed it, Moore seemed puzzled as he thought about all the doom-and-gloom forecasts he’s heard over the years. They struck him as odd. “It would take something crazy, like a communist government, for me to lose my faith in the Toronto market.”
Today, the buying, selling and building of homes in Canada takes up a larger share of the economy than it does in any other developed country, according to the Bank of International Settlements. It also soaks up a larger share of investment capital than in any of Canada’s peers.
Canadians’ mortgages have helped create one of the largest consumer debt piles in the world, and its financial system’s exposure to those loans is twice that of the U.S. With prices already at record levels, Canada’s housing market kicked off 2021 by going into overdrive, posting annual gains of 30% in many communities across the country.
And yet the bears who had so boldly predicted the end of the party have largely fallen silent—having become afraid, it would seem, to attract further attention to their money-burning calls. As they fade away, a new and in some ways even more troubling question is starting to be raised in policy circles in Toronto and Ottawa: What if the bubble doesn’t pop? What if prices just keep going up and up?
Their concern is that this would only further cleave apart the haves and have-nots in Canada. In the past two decades, the country’s major cities have posted the worst deterioration in housing affordability among the world’s major metropolises, according to urban planning consultant Demographia. That’s putting what’s traditionally been Canadians’ surest path to middle-class stability—home ownership—out of reach for many people not already in the market and exacerbating the inequality gap.
As an ever greater chunk of the economy is devoted to housing, concerns are mounting that there’ll be less room for more productive uses of capital.
“The housing market is on fire, and there doesn’t seem to be anything to put out the fire,” said Sal Guatieri, a senior economist with the Bank of Montreal. “We’re spending a lot more keeping a roof over our heads than we are on machines and factories and AI. A much greater share of our economy is now devoted to residential construction as opposed to non-residential structures, or just straight spending on machinery and equipment. That fundamentally is not healthy.”