Time for your cheat sheet on this week’s top stories.
Canadian Real Estate
Canada has officially entered a per capita recession, and it’s expected to get worse in the coming months. Aggregate GDP is beginning to slow but it’s skewed by the country’s massive population growth, giving it little to no use. When adjusted per person, or per capita, growth has actually turned negative for the past two quarters, and is forecast to decline further in the coming quarters. Declining GDP per capita is associated with a declining quality of life, and the OECD sees the worst growth over the next 40 years. That wasn’t a typo.
Canada has benefitted from a massive inflow of immigrants, but it might not last forever. Permanent resident applications peaked in 2021, dropping significantly in 2022. The first two months of this year are down even further, as applications fall sharply from India, Afghanistan, the Philippines, and China—the country’s largest sources of immigrants.
Toronto politicians may have just given its real estate bubble a lifeline. The city increased all single-family detached zoning to 4-unit multiplex zoning, pitching it as a way to make affordable housing. However, appraisal theory is based on highest and best use, and the increased zoning means these properties are now under used. The move is more likely to increase the input costs for builders, with an MIT study showing broad upzoning like this results in an increase in prices without increasing supply.
Canadian real estate prices are climbing on the assumption new immigrants will drive prices higher. Unfortunately, recently released data from Statistics Canada shows people that immigrated in 2016 to 2019 made significantly less than locals, and didn’t make enough to afford an average 1 bedroom rental in all but a handful of cities. In other words, rents are pushing to the point where it’s hard to extract more money from the new demand.
Canada is once again seeing the cost of building a home climb, especially in Toronto. National building costs rose 11%, with Toronto rising at a 60% faster rate. The country’s demand for new housing is so high, it’s now showing diseconomies of scale—instead of costs falling as more is built, the expansion of building capacity is now driving costs higher.