Real Estate Makes Canadian GDP Look Like It’s Recovering Much Faster Than Reality

The Canadian economy is recovering much faster than expected… just not in a healthy way. Canadian real gross domestic product (GDP) is down less than two points in Q4 2020. Digging into the numbers, we see the headline is better due to households doubling down on real estate mania. When housing is stripped from GDP, the drop becomes twice as large. Housing investment is managing to pick up spending from other parts of the economy.

Canadian GDP Is Now Only 1.5% Lower Than A Year Before

Canadian GDP has only made a minimal decline compared to last year in real terms. The last quarter came in at $2.1 trillion at Q4 2020, up 3.4% from the previous quarter. GDP is now 1.5% lower than the same time last year. Virtually everyone considers this a better than expected recovery. There’s a small catch — housing is consuming even more of the country’s investment.

Canadian GDP Fell Twice As Much If You Exclude Housing

Excluding residential investment, the amount invested directly into housing, GPD is much worse. GDP excluding housing made a quarterly increase of only 3.1% in Q4 2020. The most recent quarter would also be 3.4% lower compared to the year before. Residential investment didn’t just pump the numbers higher on a quarterly basis. It also cut the annual decline in GDP down by half.

Canadian Real GDP Change

The annual percent chage of real gross domestic product (GDP) including and excluding residential investment.
Source: StatCan; Better Dwelling.

What’s the purpose of excluding residential investment from the numbers? To show how massively the past year of real estate activity has skewed the numbers. GDP recovering in aggregate shows a recovery. GDP ex-housing shows more economic activity is being diverted to residential investment. Since residential investment is typically slow to move, this isn’t economic activity that can just pivot. Other segments are going to have a tough time recapturing that lost ground. 

The Canadian Economy Is Losing More Points To Housing

Canada is taking a dive deeper into the housing rabbit hole. The amount in residential investment is a record 9.3% of GDP in Q4 2020, up from 7.5% a year before. The ratio was already a higher allocation of capital than the U.S. saw during their housing bubble in 2006. Now add two more points in just a year, and this is an epic misallocation of economic resources.

Canadian Residential Investment Contribution To GDP

Canadian residential investment as a percent of gross domestic product (GDP).
Source: StatCan; Better Dwelling.

The Canadian economy appears to be recovering quickly, but it looks nothing like it did before the pandemic. This gives more context as to why the Bank of Canada said they “need” the growth. It’s to make the economy look like it’s in a much better place than it really is.

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  • Ian Brown 2 years ago

    This is the funny part the government doesn’t realize. Prices are up by $200k or whatever, and that comes out of future spending.

    They don’t care if it’s an issue in a few years from now though. They need the recovery to look like it’s here, in case an election springs up.

  • GTA Landlord 2 years ago

    Eventually everyone in Canada will just be real estate agents and mortgage brokers.

    All investors will be negative cap.

    Immigrants will keep coming just to buy housing, and become real estate agents on their own.

    No other economy can compete with this plan. It’s genius, which is why Canada will grow forever.

    • D 2 years ago

      Right, line go up. The real estate guy on the news said so!

  • V 2 years ago

    This is a disaster that will have economic consequences for quite some time. The funny thing is is that people think their houses are appreciating in value when in fact they are wrong. What is really happening is the Canadian dollar is worth less and that’s why it takes more of it to buy the house. A house can’t truly appreciate by 40% in a year, but the value of the currency can depreciate making it look like things are appreciating.

    • J 2 years ago

      I honestly don’t know what you’re talking about. The Canadian dollar has been stronger now against the US dollar and the Euro that it has been for quite some time.

      I frequently have to buy Euros and US dollars for my business so I watch the CDN dollar every day.

      • D 2 years ago

        It’s because the USD and Euro are printing more digits on the screen than CAD. Did you know that the banknotes in circulation increased by a value of $14.5 billion last year?

      • Smaug 2 years ago

        He’s talking about what the Canadian dollar can purchase vs. last year. The CAD now buys 31% less house than it did a year ago. The CAD now puts 40% less gasoline in your tank than it did a year ago. The CAD buys half the lumber it did a year ago. The CAD buys half or less the amount of various commodities (wheat, soybeans, oats) that it did a year ago. It’s stronger vs. the USD because the USD has lost even more purchasing power. The value of money isn’t how much of another currency it can be traded for. You can’t eat, wear, or live in US dollars. The true value of money is how much actual useable goods or assets it can buy. Even your retirement costs more. With stock prices at record high, anyone investing today can buy less than half the stock they could by a year ago. Something those cheering on record asset prices seem to forget.

  • Jason 2 years ago


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