Why is Canadian Real Estate So Expensive? (2022-2025)

For many Canadians, the "white picket fence" dream has been replaced by a "30-year amortization" reality. As of late 2025, the national average home price sits at approximately $682,000, with major hubs like Toronto and Vancouver still hovering near the million-dollar mark.

But how did we get here? It isn't just one factor; it is a complex intersection of supply-chain bottlenecks, monetary policy, and a structural housing deficit decades in the making. Here is the Agent's Playbook breakdown of why Canada remains one of the most expensive housing markets in the world.

At its core, real estate is a commodity. When demand outstrips supply, prices rise. Canada has experienced some of the fastest population growth in the G7, driven by ambitious immigration targets. While the government revised targets downward in 2025 to 395,000 permanent residents, the housing starts have not kept pace.

One of the least discussed reasons for high prices is the "tax on building." Municipalities rely heavily on Development Charges (DCs) to fund infrastructure like sewers, roads, and parks. In cities like Toronto and Markham, these fees can account for 8% to 16% of the total cost of a new condo.

Building a home in 2025 is significantly more expensive than it was five years ago. This is a common hurdle mentioned in realtor website guides when discussing market conditions.

The Bank of Canada’s journey from a 0.25% policy rate in 2021 to 5.0% in 2024, and back down to 2.25% by late 2025, has created a "rollercoaster" effect for those pursuing organic seller leads.

While lower rates generally make borrowing cheaper, they also act as "fuel" for the market. When rates drop, "sidelined" buyers rush back in, leading to bidding wars that quickly erase any savings from lower interest payments.

It’s important to note that "Canada" isn't one single market. We are seeing a massive "compression" where buyers are fleeing expensive hubs (Ontario/BC) for more affordable provinces (Alberta/The Prairies). This shift is critical for agents to understand when writing listing descriptions.

For decades, Canadian cities were zoned for two things: high-rise glass towers or single-family detached homes. This lack of "The Missing Middle" (townhomes, triplexes, and courtyard apartments) forced families to compete for a limited stock of detached houses, driving those prices into the stratosphere.

While recent zoning reforms (like allowing four-plexes as-of-right) are a step forward, it will take years for this new inventory to hit the market. Avoiding common listing mistakes remains vital during this transition.

Even when there is land and money to build, local rules often block or slow projects that could add more homes. Many municipalities have restrictive zoning that favors detached houses and limits building heights. These regulatory barriers alone can add 5–15% to the cost of new housing in major cities.

Canada’s tax systems treat housing as both shelter and a favored investment asset. The principal residence exemption on capital gains encourages households to see their home as a tax-advantaged investment. In certain cities, investors are estimated to account for 10–20% of purchases, adding extra demand that competes directly with end users.

While home prices have surged, incomes for many Canadians have not kept pace. This widening affordability gap hits younger people and new immigrants hardest, who must enter the market at today's elevated levels without the benefit of past price appreciation.

Foreign capital has historically flowed into Canadian residential real estate, particularly in luxury segments. While the federal government implemented a temporary ban on non-Canadian purchases, many analysts argue that demand-side measures alone cannot fix the underlying structural supply issues.

Canada is a massive country, but demand is heavily concentrated in a few metropolitan areas where jobs and services are located. In cities like Vancouver and Toronto, geographic limits (mountains, oceans, Greenbelts) create intense competition for finite land, further pushing prices upward.