Canada’s Economy Has Never Been More Dependent On Real Estate

Canada’s economy just became even more dependent on real estate. Statistics Canada (Stat Can) data shows residential investment soared to a record high in Q3 2020. The rate it’s grown over the past few months has far outpaced the economy. Consequently, residential investment is now the biggest percent of GDP it has ever been.

Residential Investment

Residential investment is real estate’s direct contribution to GDP. In Canada, it includes construction, renovation, and ownership transfer fees. It’s a big part of residential real estate’s contribution to GDP, but it’s missing some stuff. For instance, renovation is limited to major renovations. Superficial stuff like painting is excluded, despite being a big part of the economy. Adjacent industries are also in their own category, like insurance and finances.

Canadian Residential Investment Rises Over 18%

In current dollars, the amount dedicated to residential investment is soaring. The total reached $54.89 billion in Q3, up 39.34% from the previous quarter. This represents an increase of 18.03% compared to the same quarter last year. In dollar terms, this is the biggest number ever, with a huge rate of growth. 

Canadian Residential Investment

The amount spent on residential stuctures in Canada.
Source: Stat Can, Better Dwelling.

The rate of growth is actually the highest level in years. Following the big dip in Q2 2020, the rate made a big increase as most investment was just pushed into the next quarter. The rate marks a general trend of increases starting in the end of 2019, with the first full pandemic quarter being a notable exception. This is the largest rate of growth since 2010, which is a long time ago. 

Canadian Residential Investment Reached 9.43% of GDP

Residential investment has recovered much faster than other segments of GDP. Residential investment represents 9.43% of GDP in Q3 2020, up from 7.71% during the same quarter last year. This is not only the highest rate seen in at least 60 years, but it’s also very high for any country. For context, the U.S. residential investment peaked at 6.7% in 2006 during the housing bubble. The current rate in the U.S. is just 4.3%, having also sharply accelerated faster than GDP in the third quarter. Just not nearly as much as Canada. 

Residential Investment As A Percent of GDP

The amount of Canadian residential investment, expressed as a percent of GDP.
Source: Stat Can, Better Dwelling.

Residential investment more than likely saw growth delayed in Q2. If that’s the case, growth would slow down in subsequent quarters as pent-up demand catches up. While we wait to see how that plays out, it’s important to remember it was already a high percentage of GDP before the pandemic.

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