Dark clouds are forming over Canada’s economy, but most households are blissfully unaware… for now. A new research note from BMO Capital Markets warns that young adults are facing the “gruesome twosome”—soaring unemployment and unaffordable housing. The combination has created an environment on par with the country’s worst recessions. It’s an issue largely slipping under the radar but considering how fast the wheels are falling off the economy, it may be time to start paying attention.
Canada Went From A Labor “Shortage” To Soaring Unemployment In Just A Few Months
Canadian unemployment is rising at an unusually rapid pace—but almost exclusively for young adults. The youth (15-24 years old) unemployment rate has climbed to 14.5% in August. Outside of the recent pandemic, this is the highest level in over a decade. It hasn’t attracted much attention in most households, since the labor surplus has yet to hit core-aged workers. However, it’s hard to not see the issue reaching them soon.
“[The youth unemployment rate is]… 2.7 times the jobless rate for those aged 25-54, one of the highest ratios on record,” warns Douglas Porter, chief economist at BMO.
Further emphasizing the gap and how quickly it formed, Porter adds “The youth rate has certainly been higher in the past—see the early 1980s, much of the 1990s, and even in 2009/10—but it’s an abrupt shift from the tight market of much of the past decade.”
Canada’s young adults went from hearing a labor shortage narrative to facing an unemployment rate not seen outside of the worst recessions, in just a matter of months.
Canada’s Young Adults Still Face One of The Worst Housing Markets Ever
Young adults facing a bad job market is a worrying trend by itself, but it’s a much bigger problem with the existing housing woes. Pre-pandemic housing was already out of reach in major cities, but now that lack of affordability is a country-wide trend. It’s hard to pay for shelter when the cost rises significantly faster than income. It’s next to impossible when there’s no jobs to earn income in the first place.
Canada’s housing affordability has only made a minor improvement with falling prices and interest rates. “It [housing affordability] did improve slightly again in Q2, according to the BoC’s measure, but is still very weak,” Porter notes.
According to the bank, affordability was slightly worse during the early 1980s and early 1990s. However, this combination of factors creates an environment not seen outside of the most serious recessions.
“… for young people, it’s a) now tough to find a job, and then—presumably later on—b) tough to find an affordable place to live. And the combination of the two is about as challenging as the early 80s and/or early 90s,” warns Porter.
Back in the 80s and 90s, the affordability issues were resolved relatively fast with home prices crashing. Just a few years were out of whack, followed by a long period of affordability. For example, Toronto real estate took 22 years to return to the inflation-adjusted peak for home prices in the early 90s.
A correction and stagnation of that magnitude currently isn’t expected from experts. Especially with the BoC embracing unconventional monetary policies like quantitative ease, flooding investors with cheap credit to bolster demand and prop up prices, when households face a weak economy. It doesn’t always work, but many expect this to be the case in the near-term.
Think the issue is unfortunate but not your problem? That might be a big mistake. Experts warn that young adults experiencing a lack of financial stability impacts everything from demographic collapse to the country’s financial stability. The latter of which even the country’s largest bank has warned about.
Canada needs to increase immigration to fix this!!
And just where exactly are all of these immigrants going to live precisely? More than half the country is impossible to live outside during the winter!
At some point young people will just start burning things.
Many existing tenants BASK in extremely low rents for their lifetime thanks to ancient rent control laws. This removes an apartment from the market for decades contributing to rent disparity and the present apartment supply crisis.
Young adults cannot find affordable homes and they require purpose-built apartments fast. Furthermore, incompetent city pilot programs ADD to the unaffordable rental debacle.
In Ontario, Mississauga Ward 7 councillor Dipika Damerla boasts it was “her idea” for MARC mandatory inspections of apartment buildings, however, Dipika Damerla’s mandatory inspections could create RENT HIKES from landlord AGI’s making rents less affordable!
Dipika Damerla’s MARC mandatory inspections could ALSO dissuade developers from purpose-built apartments. This limits the supply which drives up market rents and contributes to the unaffordable housing crisis for young people.
Mississauga councillor Brad Butt stated that MARC could result in “above the guideline rent increases at a time when affordability of rent is paramount.” Daryl Chong (GTAA) explained landlord capital costs are “eligible for AGI’s.” Brad Butt and Daryl Chong agreed that onerous MARC inspections and regulations could DISCOURAGE developers from purpose-built apartments in Mississauga which are urgently needed. City Council Meeting Mar 27/2024 (Public Information)
If the Residential Tenancies Act (RTA) enabled city intervention of landlord and tenant matters or building management policies then the act would implicitly grant such power.
Ontario city councils must focus on incentives for purpose-built affordable apartments and not adverse MARC programs that could increase rents and interfere with existing statutes.
Boomers snickering with glee from their $4 million mansions that they purchased for $70,000 on a highschool diploma (or less). Nothing gives them more joy than seeing their children and grandchildren forced into penury.
Absolutely agree with this. Total green from the rich who feel they need to own multiple mansions while we have so many souls on the street and spare me the capitalist tropes of a FREE economy. More than half of these rich don’t even work and barely contribute to society. They are loving off the money their granparents earned!
We are at a cross road with important decisions to make.
Policy makers can opt for national continuity and progress by taking a pro-youth approach or continue to double down on past failures by bail out careless boomers, greedy flippers, brokers, middlemen, speculators and slum lords. This latter class are intentional or unintentional parasites living off the blood and sweat of productive young tax payers. Sure they had their moment where they too worked and maybe were productive, but that moment has passed, and in a ruthless world, their comforts will have to be sacrificed for the greater good.
A nation only sustains itself on the backs of its youth. Restore confidence among the youth by increasing opportunities and restoring affordability or watch productivity and morale continue to plummet.
Build massive social housing on a war footing so the children have places to stay, raise families and give hope to their own children. Not perpetuating a class war but extreme imbalances require extreme solutions.
Excellent post and I like a lot of your ideas. Austria realized many many years ago it needed to section off areas of thr suburbs and make housing ONLY for families and singles who would live in these homes while they were working there. They were called non market housing. It kept ALL of the investors OUT of this area. It’s pathetic in this day and age that our government has allowed the rich to endlessly purchase homes and properties away from others so they can Jack the prices to make a profit off of us or rent for a profit as well. It’s just not sustainable and you are already seeing Vancouver crumble. There are so many businesses closing because they can’t get workers. Workers can’t work here because they can’t afford to live here!!
I have relatives in law enforcement as well as in the Education system
They have all told me how they have never seen Drug Gang interest and recruitment as high as it right now among the youth as it is now. Like unprecedented levels.
Correct, but no need to quote relatives. Here it is straight from RCMP.
https://nationalpost.com/opinion/secret-rcmp-report-warns-canadians-may-revolt-once-they-realize-how-broke-they-are
Once the camel’s back breaks, these kids will go after anyone and anything they can blame. Wood burns easy and the elites bleed just like everyone else and have their own kids to worry for.
Not too late to turn this around though. Policy makers need to do this:
– Keep the job and stock market stable.
– Keep construction industry busy by building large scale social housing and repair our aging infrastructure.
– Kill housing. Make sure the damage is restricted to the housing industry.
– Do it fast.
Not easy, but definitely doable.
What are the participation rates? Last time I checked they’ve been falling since the early 90’s
As a small business owner I’ve found that young kids are coming into the workforce with the attitude that they are doing you a favor by working. With this attitude many don’t learn, improve their skill set and become profitable, which everyone needs to remember is the point of operating a business.
There are lots of hard, low status jobs that pay well(you can house and feed yourself, no frills though), unfortunately for the misguided youth you still have to be good at them which may be a tough pill to swallow as dreams of becoming a social media millionaire get adjusted to reality
And the bank of Canada seems to be on a path to making it worse. They are lowering interest rates again. Lowering interest rates is a two-edged sword. In theory it should help reduce unemployment but with advances in technology, the stimulative effect of lower interest rates is offset by replacing people with technology. And on the issue of housing prices, lowering interest rates means you pay less per dollar borrowed, but the price of housing rises. We are still paying for the 2008 financial crisis and the payments are going to the financial sector and the wealthy. 2008 drove the system into a corner from which it has not escaped yet. Interest rates went too low, don’t forget, interest rates aren’t just related to the cost of borrowing, but what you earn on savings. And as even young people prepare for retirement, low interest rates force them into the the world’s largest casino where regular people are the players and the banks and the wealthy are the house. Western democracies have not been serving the average citizen for decades.