Did housing kill exports? - Macleans.ca

Did housing kill exports?

Two OECD economists say yes


Between 2002 and 2008, Canada shed 328,000 manufacturing jobs.

The common explanation is that high commodity prices and a rising loonie sucked away jobs and hollowed out goods-making industries.

But was something else at work? Citing trends in Europe, two OECD economists, Balázs Égert and Rafal Kierzenkowski, argue that ballooning property prices may also be to blame. That’s what happened in France between 2000 and 2007, when the trajectory of house prices and production prices in manufacturing diverged sharply.

Construction sector wages shot up, likely luring manufacturing workers. And since construction was so profitable, capital probably moved in the same direction. Resource reallocation from export-oriented manufacturing industries into real estate has hurt France’s export performance, which has been sluggish for the past decade, argue the economists.

By contrast, they say, Germany’s declining house prices might have helped boost its manufacturing and exports.

In Canada, mining and oil and gas weren’t the only booming industries between 2002 and 2008. Housing staged a spectacular rally and, in a free-market economy, capital and labour move toward sectors with higher returns. Manufacturing ultimately lost out.

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Did housing kill exports?

  1. I doubt it’s as simple as that, but a speculative housing bubble does tend to bleed capital from areas where it might be more productive. We’ve been hearing the same stories about the housing market as we did about stocks in the 1990s. Talented people like doctors, engineers, dentists, chemists, various researchers in all areas of science, leaving their careers to become day traders. Such stories were a regular feature in the financial pages until 2001. In the past few years, I’ve read several stories about the same types of professionals leaving their careers to manage their real estate portfolios. When productive people leave their fields to pursue easy speculative gains, there must be hidden costs.

  2. Higher real estate prices does not mean higher construction profitability

  3. I’ve wondered about this situation, but not in exactly the same way the article posits. What seems to me to be the case is that manufacturing is hamstrung by myriad regulations and costs. It’s become especially hard to get any new manufacturing business going because of all the “green” regulation and municipal zoning. Possibly as a result, would-be entrepreneurs (in the broadest sense) have turned to real estate. Yes, there’s hyper-regulation around real estate also, but there are also a lot of forces lobbying politicians to allow development. The little guy can often piggyback on the efforts of the big guy. Not so in manufacturing, where you might be the only person trying to convince Melonville to let you open a widget plant, and it’s entirely up to you to fight the various greens, NIMBYs and BANANAs opposing you.