Big cities in Canada will come back to life once the pandemic is over and so will demand for homes in them, according to a new paper by economists at Canadian Imperial Bank of Commerce.
COVID-19 has caused buyers to shun high-rise units in city centres in favour of single-family homes with more space in the suburbs or outlying regions. That’s resulted in a divergence in prices for detached houses versus condos -- but economists Benjamin Tal and Royce Mendes don’t think it will last.
“Should COVID fade into the background, as is expected, the vibrancy of cities will return and so will the demand for housing within them,” Tal and Mendes wrote in the report published Thursday.
Workers who think they’ll be allowed to work remotely forever may be making a bad bet, they say. “The question for many employers is not if they will end work-from-home policies,” Tal and Mendes wrote, “rather it’s simply a question of when they will require employees to return to the office.”
Even if people can work at home full-time, they risk missing out on other job opportunities available in cities, the CIBC economists said.
Tal and Mendes say there are other reasons the exodus of workers from cities is not a long-term trend. The price gap between homes in Toronto and its suburbs has narrowed, for example -- “enough to trigger second thoughts about moving,” they wrote.
In Guelph, a city more than an hour’s drive from Toronto, the benchmark price for single-family homes soared 21 per cent in December compared to a year earlier, according to data from the city’s real estate board. In Abbotsford, about 45 miles southeast of Vancouver, detached homes jumped 14 per cent.
There’s also the demographic story. Canada’s population growth is better than officially reported, the authors say. Government data don’t accurately measure the number of residents whose visas have expired but who legally remain in the country. On top of that, they believe the number of returning Canadian citizens in 2020 was 60,000 more than suggested by official estimates.
“The better population numbers make the case that fundamental demand for city living wasn’t as bad as perceived, and some of the fears surrounding downside risks for real estate tied to urban population growth might be overdone,” Tal and Mendes wrote.
However, COVID-19 travel restrictions remain in place during the early months of 2021, making it unlikely the country will meet its immigration targets this year. The government is planning to bring in 401,000 new permanent residents this year, partly by opening pathways for temporary residents such as students and foreign workers to stay permanently.
The government’s desire to make up lost ground on immigration “means that population growth and demand for housing, particularly in urban centres, is coming back,” Tal and Mendes said.