Ottawa, a city of about a million people, boasts an attractive mix of museums and government jobs. Nevertheless, the cost of owning a home in the Canadian capital was, for a long time, very accessible. But starting about five years ago, Ottawa’s real-estate market exploded, with home prices nearly doubling, reaching a peak in 2022. A similar pattern has been replicated, at times almost exactly, throughout Canada and across the Western world. Today, major US metro areas are once again in a housing bubble, with prices far exceeding the 2008 peak.
The United States and Canada aren’t alone: A paper published in December 2024 by the International Monetary Fund finds that across 40 countries, housing is less affordable now than at any time since 2008. And as the IMF paper shows, since 2000 there has been an inverse relationship between mortgage rates and housing prices. When mortgage rates have decreased, nominal housing prices have increased.
The usual scapegoats for housing affordability—from obstacles to home construction to rapid influxes of migrants—fail to explain the stunning rise of home prices across otherwise dissimilar countries with a wide range of policy approaches and economic conditions. However, there is one common element among most of these nations: their pandemic-era fiscal policies.