Canadian Economy Dangerously Concentrated In Real Estate, But Gov Wants More

Canadian real estate sales are slow but the industry is still swallowing the country’s economy. Statistics Canada (Stat Can) data shows residential investment gained in Q3 2023. The country’s economy is now significantly more reliant on housing than the US during the 2006 housing bubble, and it’s getting worse. Especially as policymakers attempt to slant incentives towards further concentration. Concentrating resources amplifies risks, producing larger consequences for the economy. It’s like they’re doubling down their bet on a housing bubble.

Residential Investment 

Residential investment is the direct contribution housing makes to gross domestic product (GDP). It includes output from new home building, major renovations, and ownership transfer costs. It’s an important, but far from comprehensive measure of homebuilding’s contribution to GDP. For example, finance and insurance are housing heavy measures, but they’re separate categories. There’s also retail, such as paint or furnishings, etc. 

Generally speaking, residential investment should always be growing. That is, at least with a rate that’s consistent with the economy. If GDP is rising, more capital is generally sunk into residential investment. If it begins to outpace GDP growth, experts generally consider it a red flag for non-productive speculation. That is, when credit is too easy, it tends to allocate itself as housing costs. 

If residential investment becomes too large of a share of GDP, it becomes dangerous. Not only is capital being inefficiently allocated, it’s drawing from other areas. Experts considered the US to be one of the most toxic examples when it peaked at 7% of GDP in 2006. That was proven correct when a 3 point correction sent the world into a global financial crisis. The higher the concentration, the more difficult (and violent) the correction will be. 

Canada’s Economy Is Slipping Back Into Further Dependence

Canada lost some ground when it came to