How the housing market is pumping up our GDP numbers

The charts say it all


The latest GDP numbers, released yesterday by Statistics Canada, caught everyone off guard. The Canadian economy dipped 0.2 per cent in February, surprising most economists, who’d been predicting GDP would inch forward by roughly the same magnitude. Most surprised of all must have been Bank of Canada governor Mark Carney, who had projected 2.5-per-cent annual growth rate for the first quarter. “It looks like the Bank of Canada jumped the gun,” quipped CIBC in a note to clients, adding that “the report suggests that the Canadian economy isn’t out of the woods just yet.”

The disappointing numbers seemed to be tied in large part to sluggish performance in the mining and oil industry, which, as Maclean’s wrote last week, just can’t seem to be able to get their due from the commodities boom. Luckily, there were a couple of sectors that defied the general downward trend and softened the February drop. One of them was—you guessed it—housing. Take a look at this chart from the StatsCan release:

The boost to GDP from the housing sector is coming both from the construction industry, and, in part, from the “finance and insurance” category, which includes things like management of residential mortgages.

Does this mean housing is becoming a larger and larger share of our economy? Indeed, it does. Take a look at this graph we put together using StatsCan data, which shows how construction and real estate-related financial services have been growing over the past decade as a share of GDP:

Between 1997 and 2003 the housing market’s share of the economy was 17 per cent or less. Today, it accounts for nearly 19 per cent. Now, a two per cent rise isn’t peanuts when you’re talking about a trillion-dollar economy.

Admittedly, the graph above doesn’t distinguish between residential and non-residential real estate activity. Just to make sure it is actually condos and family homes, as opposed to office building and factories, that’ve been driving this decade-long climb, we looked at how the two main components of the construction industry have been performing over the years… and we got this jaw-dropping chart:

Non residential construction has been virtually flat for the last 10+ years. Residential construction has exploded (and, yes, those on the Y axis are millions of dollars).

Without the housing market, it seems, the Canadian economy would be deeper in the woods than it is now. The “good” news is that, with sluggish GDP figures forcing the Bank of Canada keep interest rates at rock-bottom, things aren’t likely to change anytime soon.


How the housing market is pumping up our GDP numbers

  1. Harper said he wanted to focus on the economy….he just didn’t give us a ‘start date’.

    NOW would be nice.

    • Seems to me as well that what these numbers really show is that we are in fact IN a recession here in Canada. If you were to cut out the contribution of the bubble effect, clearly our economy would be “in trouble” which means it already is, made worse by whatever consequences the popping of that buble will produce.

      • I think it really depends on who you are. If you are tied to the resource sector, the health care sector, or if you are a homeowner, the past decade has been great. If you work in manufacturing or other sectors, and if you don’t own a home it’s a depression. The problem is that we tend to look at aggregate figures, which conceal the fact that real hardship and bubbles can happen simultaneously.

  2. This will pose a problem in the long run. In addition to the likelihood that we are increasingly building houses and condos for speculators and people that will have trouble making their mortgage payments (after rates go up), AND the fact that high home values are problematic for young/poor people, housing is a bad sector to favour. There isn’t a lot of productivity growth in housing construction, and in the long-run, a housing-heavy economy is going to experience slower growth than one that nurtures high tech industries with spillover possibilities to other areas.

    I think some of the support to the housing sector was necessary in order to blunt a housing collapse like that which experienced in the US. The American decision to bail out the financial sector instead of homeowners doesn’t seem to have worked that well. At the same time, it’s pretty clear that we have gone too far. We aren’t just shoring up housing, we are inflating it.

  3. It’s interesting that this pretty much mirrors what happened in BC under Campbell. There was no real recovery, just a red hot housing market masking a mess. A mess made worse by the liberals cutting of taxes, mostly to the well off. Other than help the mining sector out the BC libs did little positive. On the negative side the stood by and did nothing except cheer the trashing of a once great forestry sector.
    Now they’re indebt to their eyeballs in BC again and nothing to show for it. The BC liberal neo cons have been in many ways the template for the Harper govt. Thank god it looks like they are on the way out in BC. As for Ottawa, the worst is yet to come. But one day we will be free of these clowns too.

  4. don’t need an arithmetic degree to figure that one out.
    No thanks to Harper’s “HST”, …, buying, selling, and building homes today in Canada, results in Harper and the Con’s STEALING almost half of all that in Taxes.
    …and all that extra billions in Tax monies are sure NOT going back into Health, Education, ….

    • No thanks to Harper’s “HST”, …, buying, selling, and building homes today in Canada, results in Harper and the Con’s STEALING almost half of all that in Taxes. plagiarism checker to fight plagiarism