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PART FIVE OF BNN'S WEEK LONG SPECIAL COVERAGE: RISKS AT HOME
It’s difficult to overstate how important the housing sector has become to Canada’s economy. But that economic strength is at risk of becoming a liability if Canada’s hot real estate market rapidly cools.
Canada’s housing sector is a “bedrock of the Canadian economy,” according to a recent report by TD Bank. It’s responsible for between 20-to-30 percent of total economic activity in some years and accounts for about 11 percent of total Canadian job growth, says the report.
More and more Canadians are relying on the housing sector for their livelihood, with over 900,000 employed in home construction, renovation or repair, according to the Canadian Home Builders’ Association. Together they earn more than $50 billion in wages.
The Canadian housing sector remains a bright spot in an economy that continues to struggle with the plunge in oil prices and other commodities. But with so much riding on the health of the housing sector some observers worry Canada is betting too much of its economic fortunes on housing.
“Residential housing is seven percent of GDP which is higher than it was in the U.S. and it’s been there for several years,” says Hilliard MacBeth, author of ‘When the Bubble Bursts: Surviving the Canadian Real Estate Crash.’
One of the biggest risks to the housing market is a rise in unemployment. Job loss can make it difficult for homeowners to keep current on their mortgage payments and force them to sell. And with so many Canadians employed directly or indirectly by the housing sector, some worry a hit to the construction industry will send dangerous ripple effects through Canada’s economy.
To keep its economic balance, Canada needs to diversify its economy, said Benjamin Tal, deputy chief economist at CIBC CapitalMarkets.
“If you look at the overall numbers I say yes – we are too dependent on housing and if something bad happens we will feel the pain and even the risk of a recession,” he told BNN.
And the construction sector is already starting to show some signs of strain as new housing starts and building permits dropped last month.
But Ottawa’s new infrastructure spending plan may come to the rescue. The new Liberal government promised to spend billions on updating Canada’s aging infrastructure. Details of some of that stimulus spending are expected to be released in Friday’s Speech from the Throne.
That stimulus could help offset any potential slowdown in housing, according to Tal.
"For infrastructure you need the same kind of workers as in construction – so it a sense it will offset the negative [of a slowdown in housing],” he said.