Housing Canadian housing market integration in light of foreign buyers

A large number of researches have evaluated price linkages in spatially separated markets. In this work, we analyse whether and to what extent the three major Canadian housing markets– Montreal, Toronto and Vancouver–are integrated and if this relation is time-varying. The integration of markets can have important implications for price discovery, housing demand mobility and more importantly for regulations. The question of housing market integration is particularly questioning in Canada. Indeed, some local markets in particular Vancouver and Toronto have recently experienced a strong growth attributed namely to wealthy foreign investors. Local authorities have tried to circumvent this problem by imposing a special foreign- buyer tax in order to favor local buyers. We analyse how these taxes may have shifted investors’ focus to other markets. Our results confirm the presence of thresholds and indicates strong support for market integration and demand shifting. In particular, we exhibit how adjustment to shocks may take months to be completed. We also show that there is a strong contribution from other markets to the volatility of real estate prices in each Canadian city.