In the following analysis, I will turn the focus to price to rent ratios in major Canadian cities. The data sources are the Canadian Real Estate Association (CREA) who kindly provided me with quarterly house price data going back to Q1 1980, and the Centre for Urban Economics and Real Estate at the Sauder School of Business. They have created a rent index that tracks the change in rent in various large cities in Canada by tracking the change in Rented Accommodation Subindex of the Consumer Price Index.
Below, I will examine changes in rents and house prices in Vancouver, Calgary, Edmonton, Winnipeg, Ottawa, Toronto, and Halifax.
Before examining the data, let’s review why rents are an important determinant of the value of housing (both investment housing and residential housing).
Why rents matter
Interestingly, it was the house price to rent ratio and the house price to income ratio that alerted some economists to the severe overvaluation in the US housing market (precious few as those economists were). It is worth examining why this ratio is an indicator of potential house price overvaluation and why it applies to both residential and investment housing.
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