population starts to look very, very small when you compare it to the United States, which has a population of 332 million people. The United States is slightly smaller than Canada by area and has more than nine times as many people, leaving about thirty-five people per square kilometre. That’s less than five Canadian football fields for each American. Not cramped, but we still have ten times as much space each as of our friends south of the border.
Source: OECD Regions at a Glance.
But even the United States is pretty spread out when compared to other countries. India, at almost 1.3 billion people, has about thirty-five times the population of Canada and a land area of about one-third the size of Canada, with almost 390 people per square kilometre. That’s less than a half a football field each. With 160 million people, Bangladesh is tops among large countries, with almost seven people per football field.
It’s easy to see why outsiders looking in at Canada might think it’s a vast, barren land, one that is barely populated. Maybe they think all Canadians live solitary lives in cabins deep in the woods, rarely running into each other. After all, each of us has almost fifty football fields of space, while the average Bangladeshi shares a single field with six friends.
Which brings us to the third thing most people know about Canada: It gets cold. For a good chunk of the year. In fact, in winter Canada is one of the coldest places in the world — almost as cold as Russia, and not much warmer than Antarctica
Why does this matter? For all of Canada’s massive expanses of land, Canadians are living virtually on top of each other.
Canadians are overwhelmingly concentrated in just a few cities across the country.
Canadians are overwhelmingly concentrated in just a few cities across the country, with more than 80 percent of Canadians living within 160 kilometres of the U.S. border. Any further north, and it starts to get very cold.
All joking aside, the population centres are also concentrated along the border because a large portion of the border runs along the St. Lawrence River and the Great Lakes, which are important shipping and trade routes and were even more important over 100 years ago when Canada’s largest cities were beginning to establish themselves as major population centres. Even today, the vast majority of Canada’s trade is with the United States, providing economic incentive for population centres to be close to the border.
Overall, some 55 percent of Canadians live in the ten largest cities in Canada. That’s twice the share of Americans in the U.S.’s largest cities.
| Census Metropolitan Area | Population | % of Population |
| Toronto | 6,129,934 | 17% |
| Montreal | 4,060,692 | 11% |
| Vancouver | 2,504,340 | 7% |
| Calgary | 1,439,756 | 4% |
| Edmonton | 1,363,277 | 4% |
| Ottawa | 1,332,001 | 4% |
| Quebec | 806,359 | 2% |
| Winnipeg | 793,428 | 2% |
| Hamilton | 771,703 | 2% |
| Kitchener-Cambridge-Waterloo | 511,319 | 1% |
| Top 10 CMAs | 19,712,809 | 55% |
| Canada | 35,985,751 | 100% |
Source: Statistics Canada, 2015.
| Metropolitan Statistical Area | Population | % of Population |
| New York | 20,182,305 | 6% |
| Los Angeles | 13,340,068 | 4% |
| Chicago | 9,551,031 | 3% |
| Dallas | 7,102,796 | 2% |
| Houston | 6,656,947 | 2% |
| Washington, D.C. | 6,097,684 | 2% |
| Philadelphia | 6,069,875 | 2% |
| Miami | 6,012,331 | 2% |
| Atlanta | 5,710,795 | 2% |
| Boston | 4,774,321 | 1% |
| Top 10 CMAs | 85,498,153 | 27% |
| United States | 321,418,820 | 100% |
Source: U.S. Census Bureau, 2015.
The fact that so many of us live in just a handful of places means we generally live in big cities. Populations globally are increasingly moving into cities. So, while in theory we each have an enormous amount of space, when it comes to the housing market, Canadians choose to live big-city lives: Canada is a highly urban country.
Should we be surprised house prices in Canada are high when we all live in big cities? I don’t think so.
However, knowing some of the reasons Canadian house prices have risen doesn’t change the fact that housing here is expensive. So expensive that it’s gotten a lot of very smart people very concerned.
CHAPTER 6
What Really Drives Real Estate Prices —
The Golden Rule
If we’re going to be talking about the benefits of renting versus buying, we have to talk about why house prices rise and fall. It’s unavoidable! The price of real estate has an impact on the cost of renting, but it has an even larger impact on the cost of home ownership. Even more important, the popularity of home ownership is highly dependent upon the broad-based belief and expectation that house prices will go up.
Before we go any further, let me say that, as a general rule, in this book when I talk about houses and homes, I’m referring to all formats of housing: apartments, townhouses, semi-detached, single-family, and any other iteration of housing out there. All housing is priced based on the same group of factors, as we’re about to explore.
Of course, we all collectively have many discussions about housing, with friends, family, real estate agents, strangers, and co-workers. However, it is remarkable how few of those discussions focus on what makes houses go up or down in value. We have lots of conversations about how much our houses have gone up or down and what that means for our personal wealth, but not why they go up.
These conversations sometimes touch on topics that have some impact. Interest rates affect how much of a mortgage payment you can afford. Income growth is another topic that has something to do with house prices. Sometimes you’ll hear about new highways or new subways nearby that make transit better. That usually helps a house price.
The few conversations we do have about what drives house prices are usually short, at least in part because there are no clear answers and there are many factors at play. Is it population growth that drives house prices? What about inflation? Do houses always only go up in value, like many people say? The truth is that different houses go up and down for different reasons. Some houses go up, some go up a lot, and some go down.
House prices are driven by supply and demand. Everything else you hear about what drives house prices is about something that affects supply or demand.
We’re going to talk about some simple ways to think about houses that will give you a better chance at understanding how house prices will change over time, and also help explain how prices got to where they are today.
The most complete and true statement that anyone can make on the topic is that house prices are driven by supply and demand. Just like everything else in the world, if there are more people who want a product than there are of that product, the price will rise. If there is more of that product than there are people who want that product, then the price will fall. It’s that simple. Everything else you hear about what drives house prices is about something that is affecting either supply or demand for housing.
We’ll cover a number of things that can affect house prices, and
