Housing investment
Investment in housing is the most direct contribution of real estate to the economy. Includes home construction, renovation and ownership transfer costs. It’s a nice slice of real estate investment’s contributions to the economy, but far from everything. Sectors such as finance and insurance are based on real estate but are not included in residential investment. Nor will spending on minor renovations, such as paint.
Canadian housing falls to less than 9% of GDP
Canadian housing investment accounted for a smaller share of GDP last quarter. The segment was 8.7% of GDP in the second quarter of 2022, down 1.1 points from the previous quarter and 1.5 points lower than last year. In case you didn’t realize, last year saw two-thirds of the decline in the most recent quarter. It was the first full quarter since interest rates were raised.
Canada’s economy is less dependent on real estate, but still dangerously over-dependent
Canadian residential investment as a share of gross domestic product (GDP). Source: Statistics Canada; Better Residence. Canada’s economy is still heavily dependent on real estate, but it’s no longer in the worst shape. Back in the first quarter of 2021, the ratio peaked at 10.3 points – an impressive share of the economy. More than 1 in 10 GDP dollars came from housing investment. It was a share rarely, if ever, seen in an advanced economy.
Canada’s economy is even more dependent on housing than the US in 2006
Housing investment is now at its lowest share of GDP since the second quarter of 2020, but still has a long way to go. Just falling to the point before the 2020 rate cuts requires us to fall another unit behind GDP. It’s a pretty substantial move. Despite the decline, Canada’s economy is still heavily dependent on residential investment. For context, the US was considered dangerously addicted to housing in 2006 when it reached 6.7% of GDP. Concentration inevitably leads to the Global Financial Crisis. Canada’s economy doesn’t have the same global impact, but it is more dependent than the US ever was. The most recent quarter shows that GDP is 29% more dependent on the US at worst. It requires either a very large slowdown in the economy or a deep contraction. Death by a thousand cuts or all at once.
