Housing now Canada’s trump economic card
May 5, 2021
Canada’s housing industry now accounts for about 9 per cent of the country’s total gross domestic product (GDP), but if current trends continue it will become the dominant player in the economy.
In February 2021, the Bank of Canada reported monthly growth of 0.5 per cent in the residential real estate rental and leasing sector. Output in the sector sat 3.4 per cent higher year-over-year.
As of March, Canadian housing sales were 20 per cent higher than a year earlier and housing starts were on a record seasonal pace of more than 300,000 homes.
This compares with declines in almost every other major sector of the economy.
A report compiled by the Conference Board of Canada, released April 30, shows that Canada’s mining and oil and gas industries posted a 2.8 per cent decline in the first quarter of this year; the transportation and warehouse industry fell 2 per cent (transportation alone plunged 35 per cent year over year); and, output in the wholesale trade sector fell by 1 per cent.
“Overall manufacturing output declined by 0.9 per cent with textile, plastic and rubber, and non-metallic products segments recording the largest contractions,” the report added.
Aside from housing, few other segments of the economy showed growth in the first quarter of 2021. These include shopping, with retail spending up 4.5 per cent, and accommodation and food services, which increased 3.5 per cent from very low levels in 2020.
Notable output growth was recorded in the construction industry—up 2 per cent, but fuelled by record-high levels of residential construction, the Conference Board added.
Housing industry strength is not all good news, Fidelity Investments portfolio manager David Wolf cautioned.
“Housing is becoming a dominant player in GDP in a way that is dangerous,” Wolf told Bloomberg news in a recent interview, noting Spain, Ireland and Greece had housing-dependent economies just before the financial crisis in 2008.