Canada’s Residential Investment As A Percent of GDP Is Dropping, But Still Elevated

Canadians are still real estate fanatics, but the peak was so high, today’s levels seem normal. Statistics Canada (Stat Can) data shows investment in residential structures increased in Q3. When compared as a percentage of GDP however, residential investment is down from the peak. Although it’s still way above usual.

Residential Investment

Residential investment (a.k.a. residential structures in Canada) is real estate’s direct contribution to GDP. It includes construction, renovation, and ownership transfers – but not a comprehensive measure. For example, the renovation part only covers large renovations such as roofs and kitchens. It excludes routine maintenance and superficial upgrades like painting that can be easily done by house painters. The segment measures a good portion of real estate, but not quite all. For example, insurance and finance are largely dependent on real estate, but not included here.

Canadian Residential Investment Reached Over $46 Billion In Q3

In current dollar terms, the amount dedicated towards residential investment is growing. Residential investment reached $46.04 billion in the quarter of Q3 2019, up 4.29% from the previous quarter. This works out to an increase of 3.45%, when compared to the same quarter last year. The increase is higher than last year, but the gains are small in contrast to recent years.

Canadian Residential Investment

The amount spent on residential stuctures in Canada.

Source: Stat Can, Better Dwelling.

The year-over-year (YOY) growth is big for a quarter over the past 12 months, but still unusually low. This is the biggest YOY for any quarter since Q4 2017, with most of the recent numbers printing negatives. Even so, this is the second slowest YOY growth for Q3, in the past years. Other than last year, this is slow for the industry.

Residential Investment Is Over 7% of GDP Still

Residential investment as a percentage of GDP is falling, but still elevated. It represented 7.68% of GDP in the quarter of Q3 2019, down from 7.79% from a quarter before. Compared to Q3 last year, it’s a little higher – but some of this appears to be distribution. That is, some quarters in the past year have been slower than usual, and some faster. This becomes apparent when we look at growth over a longer period.

Residential Investment As A Percent of GDP

The amount of Canadian residential investment, expressed as a percent of GDP.

Source: Stat Can, Better Dwelling.

The rolling 12-month trend shows just how dependent Canada has become on real estate. Residential investment as a percentage of GDP is coming down on an annual basis. It most definitely peaked in 2017. We’re still very much above historic norms though. In fact, cheap financing and financial innovations prior to the Great Recession couldn’t even compete with this percent of the economy devoted to real estate.

Canada’s dependence on real estate as a driver for the economy is lower, but higher than it should be. For context, residential investment in the US is below 4 percent today. The US hasn’t breached 7% in over 50 years – even right before the great recession. Canada on the other hand, has been over 7% for almost half a decade now.

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6 Comments

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  • Mica 4 years ago

    heh. The drop is leading the GDP as an indicator. Put another one up for the Norwegians.

    • Trevor 4 years ago

      The Norwegians? Because of oil?

      • Mica 4 years ago

        Nah, because there was an article a few weeks back on Norges, Norway’s central bank, concluded slowing residential investment is an indicator of the end of the business cycle.

  • Trevor 4 years ago

    The economy won’t have a major change, until the next BOC head is announced. At the end of their terms, they always juice the economy to take credit.

    Lucky for everyone, his term ends next year. Happy holidays!

    • Joseph 4 years ago

      Interesting point, Trevor.

      FYI, for those interested, Poloz’s term comes to an end in June 2020.

      Now I have something to look forward to.

  • Snarky 4 years ago

    What do you mean juice the economy?

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