Canada’s economy posted a mild contraction, but the bigger issue is what’s driving the remaining growth. Statistics Canada (StatCan) data shows real GDP fell 0.1% in May, up just 1.2% from last year. That’s slow—but the biggest issue is how much of that came from imputed housing activity. Imputed rent from owner-occupied homes—a theoretical estimate—accounted for over 12% of annual GDP growth, quietly taking up more space in Canada’s economy than many real industries.
Canadian Owner-Occupied Rents Play Increasing Role In GDP
The owner-occupied segment of GDP shows the imputed rent paid by homeowners. It’s not rent that homeowners actually pay, but a statistical construct: the estimated value of rent they would pay if they rented their own home. These theoretical rents are taking up a growing share of Canadian GDP.
Canadian GDP Growth: Fictional Rents Fueled Over 1 In 10 Dollars
Canadian GDP growth: Owner-occupied housing’s contribution to annual GDP growth.
Source: Statistics Canada; Better Dwelling.
Canada is increasingly reliant on imputed rents from owner-occupied housing—now a multi-billion dollar “industry” on paper. Over the past year, this segment accounted for 12.5% of real GDP growth—more than $1 in $10—outpacing most actual industries in its contribution. Yup, fictional rents contributed more to GDP growth than oil and gas extraction, which represented about 7% of total growth.
The owner-occupied housing component now accounts for 8.5% of total real GDP. The ratio only breached the 8% level in 2015, and hadn’t gone above 7% before 2009. Since the low-rate era post-Global Financial Crisis (GFC), the country’s output is more reliant on hypothetical market rents that homeowners would pay. Oil and gas extraction is about 3.3% for those curious.
Canadian GDP More Reliant On Fictional Rents Than Oil & Gas
The indicator is problematic in many ways but there are two key ways it overstates growth. The first is the influence of marginal rents, which are rental prices in the current market. A housing shortage can drive up rents for those actively looking for units, as well as the imputed rents paid—even if it has little impact on secure homeowners. Rapid rental inflation leads to rapid inflation of imputed rents. This boosts GDP, even though higher rents mean less disposable income, which drags down economic growth.
Second is Schrödinger’s disposable income: Imputed rents are counted as housing consumption, yet that same income is available to drive spending elsewhere. This makes GDP look stronger than the cash economy, especially during downturns. A collapse in economic activity can be made up with higher rents that don’t have to be absorbed at scale, but only by new renters.
Ultimately, we should ask what’s the purpose of GDP? It’s often seen as a benchmark for the economy, helping to provide quantitative feedback that can be fine-tuned. But it doesn’t do that—it’s easily gamed and reflects non-market activity. It serves more as a broad indicator of the value of economic activity, without regard to why it’s important or how the country is doing.
Are normal rents included too or just imputed from homeowners? Is anything else imputed? I’ve gotta admit, this is something I had no idea existed.
I had no idea either. WTF are they doing with the GDP statistic? Institutional investors rely on these questionable statistics and I wonder how may analysts know anything about this particular manipulation.
So SC does some really creative math in their economic reports. First we have sectoral contributions that are clearly wrong, with mining, processing and oil and gas at only 83B USD per year, but generate more than 300B USD (or more than 50%) of our exports? Then we have interest that SC strips out of CPI, and assesses as a imputed interest charge.
The concept of imputed rents is mainly about measuring the relative contribution of housing, construction, finance and insurance to our GDP. The problem is that none of this actually contributes much of anything to our GDP. Housing once built doesnt actually produce anything. The entire concept of supply and demand has almost nothing to do with the price of housing, so the whole thing is a shell game.
In effect, rent is at least a payment, and as such offers some economic benefits. The rest is just nonsense.
So in effect, we have been in a decade long recession, as real GDP per capita is off by 40+% when adjusted for the decline in the purchasing power of our dollar. Even worse, the #1 culprit for that reduction is the creation of money by private banks, guaranteed by our govt, to fund ever higher housing prices, which SC doesn’t measure as inflation, but does measure as GDP?
Once we strip out this nonsense, we are down 40+% in 9y, by far the worst economic history in Canada in 100y.
Leave it to a boomer at Stats Can’t to pretend them owning a home should pay more than a rig worker would make.
Hmmm was that why for the nrcan green home grants and cmhc interest free loans coupled with provincial and commercial grants landlord living in situ with renters were eligible but mid and high rise condos were excluded despite the legal pressure of the automatic liens behind all condo to owner billing’s for common areas including building envelope ? Magic math ?
Ah, I’ve missed your biting voice of reason, Stephen. Somewhere, deep down, I still root for Canada. Japan stole my heart, and America is my fiery side fun, but I still want what’s best for my ex.
It is sort of interesting to think to yourself as a VERY passing thought, that if you were renting your home you’d be paying say, $5,000 a month, but why is this fake figure slid into GDP? How is this a domestic ‘product’? How is it a part of the economy? Who dreams this stuff up? What else is wrong with the calculations of our GDP?
What happens if rents fall precipitously? Will Stats Can impute a negative GDP impact? What percentage of GDP is real estate related at this time? Many questions at this point.
in order to achieve horizontal equity – an important principle – imputed rent needs to be taxed as regular income under the cra
No idea what horizontal equity means. The monetization of housing is clearly the root cause of the M3 growth from 1.5T to 4Tr since 2014. This is why inflation is out of control, and since all the capital is ‘invested’ in housing, the real economic drivers of standard of living are starved for capital, while housing continues to get ever more.
Basically climate science applied to economics – so the goal is to produce a desirable outcome, where “desirable” means the economy is not in a downward spiral due to ten years of liberal fascism.
Ok I’m no economist… But this seems so fishy to me… when did we start counting pretend rent as part of the economic activity for the country? Like, was this just made up when the economy started tanking just so we could pretend like that wasn’t happening?
There are a lot of things in the financial world that I don’t agree with, but this is just st*pid.
Excellent article. The key issue here is that Stats Canada takes a great deal of methodological liberty when they assess GDP, CPI and the growth of either. This is particularly relevant because we are being told by the media, politicians, etc. that the ‘recession’ we are all feeling is only in our heads? GDP growth. CPI and so on are all showing that (leaders like Trudeau, Freeland and Carney) did not directly cause a massive recession and housing crisis, since the numbers dont ‘lie’.
However, the entire concept of imputed rent is used mainly to discount housing price from the GDP growth and CPI, particularly when housing prices are rising rapidly, and then smoothing the impact of rapidly collapsing prices on the way back down. It is also used to consider the implications of tax free wealth creation since owning capital assets is not typically taxed unless they are rented out, in fact owning a capital assets may even be a net tax benefit when the govt allows the deduction of maintenance and depreciation.
Add to this SCs failure to properly account for interest as an expense, basically stripping out actual interest, and charging some Frankenstein rate they created based on prime rates, not actual rates. So when we are told that Canada is not in a ‘recession’ because we haven’t had 2 consecutive quarters of negative GDP growth, this becomes highly problematic because they are in effect gaming the system.
For example: Lets consider the makeup of our GDP since 2014. In 2024, the top 10 largest sectors were in order: Real Estate, Manufacturing, Social Spending (welfare, Health and social assistance), Govt (public administration), Construction, Finance and Insurance, Professional Services, Education, Wholesale trade, Retail Trade.
Of these only manufacturing represents a potential to generate exports and forex for the economy. However, when we consider that in terms of exports, we see that only exports of cars, aerospace and precious metals went up in 2024 from 2023, mainly due to inflation.
The bigger issue is that as per SC, mining, oil and gas was, in total worth 83B USD, but in terms of exports, was 244B? Similarly, manufacturing of various goods was listed as 152B for GDP, but was 116B of exports? Considering that at least a portion of each was for domestic consumption, the misallocation of GDP is catastrophic. Lets say that 25% of the former is added to it, and it becomes almost $300B USD, 441B CAD, it is clearly the largest component of Canada’s economy, but according to stats Canada its not even in the top 10? Similarly for manufacturing, 116B, would be 145B USD or 204B CAD. That is roughly in line with SC numbers at 211B.
The top component of our GDP is real estate, and this is clearly an issue since much of that is so called ‘imputed rents’.
In effect, the entire process has almost no practical value whatsoever. Since Exports are key to maintaining our productivity and standard of living, why discount them for GDP? Since Real estate is rarely of any benefit to standard of living, why is it promoted. For example, out of Canada’s 2.1Tr USD GDP, if 441B or 225 of the total, it is clearly the most important sector of our economy. Also since it involves minimal imported components, unlike vehicles for example, which are often 50-60% assembled from imported goods, then that becomes an even bigger problem?
Finally, for anyone who has reviewed SC reports, the other serious concern is the misuse of ‘real’ GDP in their reports. The definition of this would be GDP growth after CPI is removed. However, as we know from the above, several items in the top 10 sectors are misstated, as well as the CPI indicator itself. The use of imputed rents allowed the housing crisis to both not be considered inflationary (despite, ironically, being the number 1 real creator of systemic inflation in Canada), and then to slow the deflation trend on the way back down? Add to this massively misstating real GDP, CPI, and even sectoral ranking demonstrates that in Canada, these numbers are of zero importance to anyone.
Also why Freeland was able to get away with a grotesque claim that its a ‘vibecession’; from her limo.
This is truly unbelievable. Inflating GDP numbers by using non-existent rent payments??
The US (and most countries) also count imputed rent. If you didn’t do it, a shift from rental to ownership housing would lower gdp despite being the same in consumption terms. (Higher actual rents also don’t necessarily lower disposable income as much as shift it? It’s going somewhere, and although you could fear it’s sitting in bank accounts, seems to be supporting plenty of consumption for mom and pop boomer investors.)
There might be a misunderstanding about the effect of prices here — real GDP effectively removes changes in price levels. Rising imputed rents increase nominal GDP but also affect the deflator. The contribution of ownership housing to real GDP is probably better accounted for by population growth.
As a more minor point, rents are not imputed by asking rents but based on average rents for all rented units including with long-time tenants (adjusted for changes in composition of owner vs rental housing). So the effect of short-term spikes is somewhat moderated even in nominal GDP.
The problem isn’t counting imputed rent. It’s counting imputed rent, including mortgage interest in CPI (US doesn’t, nor do real countries), and the imputed rent becoming one of the primary industries.
It’s also subject to the artificial inflation from when Statistics Canada changed how they calculate rents and didn’t modify the old data, increasing rents by double digits over the span of a few months. This coincidentally inflated GDP via imputed rents artificially inflated.
Comparing Canada to the US is also useless since they’ve entered their tin pot dictator phase where their economy is focused on higher consumer taxes and firing everyone that produces a data point they don’t like.