Economic dip reveals housing’s vital role
September 9, 2021
An economic contraction in Canada during the second quarter (Q2) 2021 has further exposed the near dominance of the real estate industry on the country’s overall economy.
Statistics Canada said the economy “unexpectedly” dipped 1.1 per cent in Q2—down sharply from the revised 5.5 per cent gain in the first three months of 2021, compared to a year earlier. Economists had been predicting a 2.5 per cent expansion in Q2 due to the expected lifting of pandemic restrictions on travel and retail access.
Canada’s Q2 economic slowdown can be linked directly to slower housing sales, according to senior economist with Dominion Lending Centres Dr. Sherry Cooper. While new home construction and renovations increased quarter-over-quarter, home ownership transfer costs (includes all spending related to a home sale) dropped 2.2 per cent, Dr. Cooper noted.
This unexpected dip was enough to stall total economic growth in Canada.
“Since the third quarter of 2020, housing investment has emerged as the predominant contributor to economic activities and capital stock—with residential capital stock surpassing non-residential capital stock. Moreover, the average housing investment for the previous four quarters was 17 per cent higher than the average over the last five years,” Dr. Cooper explained.
Data shows residential real estate’s contribution to the national GDP now exceeds oil and gas plus manufacturing—combined.
Both new construction and renovations—the components of residential capital stock—have shown sustained growth since the third quarter of 2020. Spending continued to increase on new houses (up 3.2 per cent) and home renovations (up 2.4 per cent) in the second quarter, Statistics Canada data shows, even though housing sales declined compared to the first quarter of 2021.
Housing sales, however, are forecast to increase later in 2021.
“It is still widely expected that the economy will rebound in the third quarter,” Cooper said. “With the surge in household savings and continued growth in personal disposable income, pent-up demand is likely to boost consumption for the remainder of this year.”