Canada

Canada’s GDP Gets A Boost By Deepening Reliance On Real Estate

Canada’s dependence on real estate to grow the economy just got deeper… or made a death rattle. Statistics Canada (StatCan) numbers show residential investment showed quarterly growth in Q2 2019. The increase represents one of the few sectors of growth that boosted GDP in the most recent quarter. While residential investment rose on the quarter, it still fell from last year.

Residential Investment

Residential investment, a.k.a. residential structures, covers the direct contribution of real estate to GDP. Included in the numbers are construction, renovation, and ownership transfers. Construction covers the building of single and multi-family units. Renovation covers large renovations, but not minor stuff like painting. Ownership transfer costs include agent commissions, and lawyer fees. You may have noticed, but it’s a far from comprehensive list of real estate’s contribution to the economy. Instead, it’s only the numbers that can be easily and directly attributed.

Boring – why is this important? Studies show residential investment  is strongly linked to the business cycle. Countries with high rates of ownership, like Canada and the US, show the strongest link. Those with low rates of ownership, like Japan, have the weakest. The higher the dependence on residential investment, the more it influences the business cycle.

Residential Investment Rises On The Quarter, Falls On The Year

Residential investment boosted GDP for the quarter, but moved lower from last year. Investment for the quarter reached $136.9 billion in Q2 2019, up 1.35% from the previous quarter. This represents a decline of 3.16% compared to the same quarter a year before. The growth was the second highest for quarterly GDP growth, second only to exports.

Canadian Residential Investment

The quarterly estimate of residential structure investment contribution to gross domestic product.

Source: Statistics Canada, Better Dwelling.

Residential Investment As A Percent Of GDP Gets A Small Uptick

Residential investment as a percent of GDP made a small increase on the quarter. Residential investment hit 6.56% of GDP in Q2 2019, up 0.45% from the previous quarter. The small uptick wasn’t enough to reverse the trend, still falling 4.78% from last year. GDP growth became a little more reliant on the industry, but the trend is still slowing. It was still the lowest percent of GDP for a Q2 since 2009.

Canadian Residential Investment As A Percent of GDP

Quarterly estimate of residential structure investment, expressed as a percent of GDP.

Source: Statistics Canada, Better Dwelling.

Canada’s dependence on residential investment increased, but the trend is still lower. On the quarter, it was still one of the largest contributors to GDP growth. But the small increase, is still only a single increase at this point. Compared to last year, these numbers are still on the decline.

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15 Comments

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  • Ian 3 months ago

    Up on the quarter, down on the year? The government’s really trying to bend this in stats can report this morning. Thanks for pointing this out.

  • Liam 3 months ago

    US consumer sentiment falling, with one in three people now expecting unemployment to rise. Let the hoarding begin.

    https://www.cnbc.com/2019/08/30/us-consumer-sentiment-august-2019-final.html

  • Jupiter 3 months ago

    Real estate has become a cancer to Canada’s future. If you look at the economy from a real development oriented perspective you will find our system is f***up. First our system transfers wealth of young families via heavy taxation to keep boomers alive. Then what remains of your income you have to pay real estate predators for a place to live. Then what’s left is your budget for food and other needs if your family.

    So we are basically taking from the most young productive segment of the population and transfer their wealth and hence opportunity to boomers who already have accumulated wealth. How can our young productive families produce wealth and innovation when they can barely survive or uphold their dignity?

    Its time to put an end to this predatory real estate robbery to an end. We need to start talking about having a high predatory real estate tax on ‘investors’. Tax all none primary residential real estate, no more foreign ownership, no more corporations without good reason should be allowed to buy residential real estate. We need real action now, victims of predatory real estate should speak up. No one else will fight for your dignity and future, they are benefitting from it.

    If skinny Asian kids can speak up in HongKong what are you afraid of?

    • Millennial Whinger 3 months ago

      All taxing non-primary residences will do is push up rent for everyone across the board. Landlords can very easily apply to raise the rent beyond the normal rent control allowance due to their own costs going up. It’s a simple process which is very common when maintenance fees and property taxes increase.

      Also, get off the boomers nonsense. Boomers paid into the system their entire lives, you’ve only been paying for several years. They are entitled to the care they receive as they age. As you get a little older, and the years start passing quicker, you will see how ignorant your thoughts on this matter are.

      I do agree we have a problem with predatory real estate investors, but the problem stems from very low interest rates. Stop being a victim. Stop festering on issues you don’t fully understand. Go do something positive with yourself.

      • Jupiter 3 months ago

        No, the key is to have a step increase over 3 years where none primary residential real estate is taxed first year at +50% property tax second year at +100% and third year +300% 4th year onwards at +500%. The point is to make sure the cost is not transferred to renter but facilitate an orderly release of supplies over 3 years.

        We need people with brains to combat this robbery.

        • Millennial Whinger 3 months ago

          If you can not understand how increased input costs for landlords translates into increased rent for tenants, I can’t help you.

          However, I do agree with your approach as it pertains to non-occupied residences.

      • Zenity 3 months ago

        Whiner I think your the one who don’t know what your talking about. From your name I can tell you are just an immature kid who knows nothing. Bet you didn’t even take econ101. But I doubt you even got into university. All your replies are school yard come backs with no substance. Grow up kid, he has a good plan. predatory real estate tax over 3 years is the solution.

        • Millennial Whinger 3 months ago

          Right. School yard comebacks is a bit off. I’m making statements, very astute ones at that. As opposed to the nonsense you just wrote and often displayed here.

          In response to this ‘plan’. I don’t believe the consequences have been fully though out. Certainly not from anyone with experience in how things actually work. If you think the answer to all problems is more taxes, you are nieve.

  • Zenity 3 months ago

    This guy on here ranting about a predatory real estate tax got a point. We need to force these ‘investors’ to sell their rental units.

    We can’t allow people to hoarde residential real estate when normal families can’t even afford a place to live. Not to mention foreigners who don’t even live in Canada benefitting on the suffering of Canadian families.

    The government don’t give a crap about you, you need to make them care. Time to organize or leave this sh*t show if you have the choice.

  • Bluetheimpala 3 months ago

    Read up on macro and demographic shifts. Follow the money. If i didn’t have a job and a life in general this is all i would do. Once stats can, gov or MSM report it is already months old. Riddle me this…if we have 100 jobs and 100 people working. Each year 10 new people are added, 7 drop off…very basical blue-ian math says the unemployment rate is around 3%. Now what happens when 30 people stop working and 15 get added. Seems awesome right? More people are hired. Record low unemployment means wages go up right? Just think about wages and unemployment.
    What is being touted and what we’re experiencing. Anyone here Increase their take home by 15-40% over the last 5 years just by changing employers? The reason i point this out is based on a previous comment; a stat is a data point that is related to others. Shouting at a single data point is like shouting at a cloud. Melting like a snowflake under the breathe of one indicator. Don’t be stupid.
    On another note, ZIRP seems nuts? Not when you you are hit with a liquidity issue related to repo(disclosure: i am learning about this, blue is still a dummy)… liquidity matters. When shit hits the fan it all contracts around the middle.

    Fundamentals matter. Maybe it isn’t exactly the same each time, maybe things get prolonged to make the plebes normalize but if you think this ends well, great, go buy some more condos. BD4L.

  • cto 3 months ago

    Listen kids! want to get back at the boomers?
    Move out of Toronto.
    If you have a decent skill or education, there are lots of jobs outside of metro and especially down town.
    There are many, many cities in Ontario and Canada with organizations looking for new help.
    At this point and time, i just cannot fathom why a younger person would want to actually move to T.O, even if the job paid $150 Gs a year.
    A little secret for you, i know of a number of kids in trades making $60 – $90Gs / yr building high-rise condo’s and not one of them owns a single unit in the city,…but they all own real estate outside the GTA. this is funny that the majority of jobs in metro are res construction but the younger tradesmen aren’t living in the “City”..

    • Jupiter 3 months ago

      The kids needs to fight back, the solution is right in front of them. Implement predatory real estate tax on all none primary residential real? estate. The boomers won’t do it, it’s up to the victims go seek their own justice.

      • Beh G. 3 months ago

        The solution to solve most of mankind’s problems right now (including housing affordability issues that are plaguing other western countries as well) is very easy: start downsizing on the absolutely useless and super expensive political caste and hold the remaining ones accountable for what the preach and the chaos they cause.

        The middle class was empowered in all countries after the abolition of the caste system, only to find itself creating, paying for and being suffocated by a new caste decades later that does absolutely nothing other than to pit the population against one another to live off the story.

        We pay these fcukers huge sums of money to solve our problems, to provide security and stability and all they do is the exact opposite. For example, the solution to GTA’s housing problems are easy and economics 101 in a country with practically unlimited land and very low population density: when the demand is high, make policies to increase supply and reduce demand and do the opposite when demand is low.

        But what do our politicians do ? Well the demagogy of “environmental protection”, “multiculturalism” and “the right to decent housing for young [insert nationality] buys them votes so they choke housing development (prevent an increase in supply), bring in more immigrants (increase demand) and in an act of monumental idiocy our genius PM puts the government in the business of buying homes (further increasing demand)!!!

        The stuff they do is so insane that if they weren’t politicians, they’d put them in a white padded room in a loonie bin but because they’re politicians, we actually go out, vote for them and support their sorry asses to fill their pockets with our money. I guess at the end of the day, we are the real idiots paying so much money for a circus with no shortage of clown socks! 😉

  • Beh G. 3 months ago

    Oh yeah, almost forgot… one would have thought that statistically speaking, out of all the politicians on both sides of the spectrum in all of the western world in the past several decades, someone with an average IQ would emerge at some point who would further break down the provincial/state/autonomous/whatever portion of the corporate and personal income taxes into a municipal one to be able to control population flows.

    This way you can reduce or stop over-development by raising the municipal corporate and personal taxes and encourage population flows to under-developed municipalities by reducing their taxes – pretty elementary stuff really.

    But they do instead, is to use the only tool available to them at the municipal level at the moment (the property tax) in the exact opposite way… so that larger cities and over-developed areas have lower property taxes!

    Like I said, so insane that in other jobs you’d be asked to take a psychiatric evaluation after so many fcuk-ups but our politicians are the epitome of intelligence and morality… stick a fork in me, I’m done.

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