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“Large Canadian centres like Toronto and Vancouver are increasingly behaving like world-class cities,” said Aled ab Iowerth, deputy chief economist at the CMHC. “When you have weak supply responses, as you do in these markets, prices have nowhere to go but up.”

Data gaps have prevented the federal housing agency from fully understanding what’s behind the supply shortfalls in Toronto and Vancouver or why they have grown so vast in comparison to Calgary, Montreal and Edmonton. Supply responses were stronger in each of the latter three cities and price increases were more modest.

“What seems to be happening in Calgary and Edmonton is when demand comes along, the cities are spreading horizontally, so there’s a bit of sprawl going on,” ab Iowerth said.

Montreal already has a large rental sector, a greater comfort living in denser housing, and more readiness to convert industrial land to other uses, he added.

In Toronto and Vancouver, a number of factors including the availability and price of land have prompted supply efforts to shift away from single detached houses and toward condominiums and more expensive high-end homes. These market forces have coincided with municipal and provincial policies encouraging increased housing density.

Though the objective is to combat urban sprawl, “densification … needs to increase the supply of all housing,” the report states.

The supply problems in Toronto and Vancouver are largely due to government policy interventions that focus on the demand side of the housing market equation, said Benjamin Tal, deputy chief economist at CIBC World Markets Inc.