Homebuyers are used to Canada's real estate prices being led higher by big cities like Toronto, but few anticipated what would unfold in smaller cities and towns when COVID-19 hit.
The pandemic made many rethink their living situation. Working from home while being cooped up in a small condo wasn’t working, and big-city living was expensive.
So, buyers sought out more space and decided to drive until they qualify, especially in Ontario where prices have risen the most since the start of the pandemic. Low interest rates also helped drive people into ownership.
Many ended up hours away from Toronto in places like Bancroft, the country’s leader in year-over-year average price gains of an astonishing 48 per cent.
Bancroft mayor Paul Jenkins says he’s not surprised. "Our prices here for a long time were very very undervalued, even compared to adjacent districts like Halliburton,” Jenkins told Yahoo Finance Canada.
"As prices started to escalate in other regions and people became aware of what we had here, we had a lot of migration coming."
Jenkins says people who visit are surprised to learn Bancroft’s population is 4,000 when they see some of the same chain stores downtown that they would see in bigger cities.
Like other parts of the province, supply was not ready to keep up with the surging demand. In Bancroft’s case, low prices for so long meant builders weren’t clamouring to build homes there.
"It really stunted new development because developers would come in and look and say, your housing prices are too low and we cannot build here because the gap between a new build and a resale is just too great,” he said.
Jenkins says it will take time for supply to catch up, and approval for subdivisions can take five to seven years. Meanwhile, he says there's no sense of ill will towards out-of-town buyers coming in and bidding up prices in his town.
“This is a free country and you're allowed to do that. We've had people who have owned vacation homes up here for years, who have been a very important part of our economy,” he said.
North Bay wants you to move there
North Bay, Ontario is home to Canada’s second-largest real estate price run-up. Even though prices are up 42 per cent year-over-year, its mayor wants big-city buyers to keep coming.
North Bay has promoted itself in the Greater Toronto Area, trying to get people to move there. Mayor Al McDonald says it had the infrastructure in place and greenlit approvals for more supply. So when the pandemic hit, its housing market was ready, albeit not for the outsized onslaught that followed.
McDonald campaigned on growth in 2018 and says he doesn’t want to slow the flow of buyers coming into North Bay. Instead, he prefers builders be able to build more homes.
“Here in the north, we need growth where maybe in the GTA and larger centres you're running into gridlock, long commutes, high density builds to get as many people on a plot of land as possible because your land costs are so high,” McDonald told Yahoo Finance Canada.
"Here we have the land and the ability to put people here. So no, my preference is that people continue to look at North Bay and move here to fill the jobs that we have vacant."
McDonald says bringing in more skilled workers and sorting out supply chain problems would help builders add supply.
Even though prices have shot up in North Bay, McDonald says it's still much more affordable than Toronto.
"In one of our really nice neighbourhoods, Airport Hill, you can buy like a 3,500 to 4,000 square-foot home for $600,000," he said.
"Where in Toronto, you're paying like $2.5 million."
Barrie needs more housing supply
Like Bancroft and North Bay, prices have shot up in Barrie (38 per cent). But a commute into Toronto takes less than half the time.
Barrie home prices were already rising steadily in recent years, but the pandemic accelerated it. Mayor Jeff Lehman says he isn’t surprised by how much prices have gone up, but he is surprised how fast it happened.
"It never surprises me that people want to live here. It's an incredible place to live and the combination of the central Ontario Muskoka lifestyle and close proximity to the GTA,” Lehman told Yahoo Finance Canada.
“So there's all kinds of stuff here that you never need to leave the community for, you know, culture and shopping and sports and all those things.”
Lehman says he wasn’t expecting so much energy in the economy during a pandemic.
“I kind of would have figured that the impact of all the uncertainty of COVID would make people put off moving house, they would sort of hunker down instead of taking the risk of buying a new home and getting in the market,” he said.
Barrie has grown quickly over the years. Much of that growth has been from people moving there from other parts of the province. So locals are used to the arrival of out-of-towners. Lehman says people are more frustrated by the sudden lack of supply.
“I don't think it's so much anger that there are all these people coming in. There may be to some extent because they're snapping up with few homes available,” said Lehman.
“I think the frustration for people is they go shopping for a house, and there's literally nothing available.”
Lehman took part in Ontario’s housing affordability taskforce. He says the province and the federal government haven’t been on the same page.
"If we want to substantively change the price of housing in Canada, both rent and purchase, then you're going to need bolder steps that use economic levers and not just planning policy or things like that," he said.
"It's got to be how the federal and provincial government treat investment in rental housing, how they subsidize public housing, how they target subsidies. That's where you make a substantial difference in the math."
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.