The housing downturn that’s taking root across Canada will act as a headwind to economic growth this year, following a period in which real estate powered the economic recovery from COVID-19, but was also characterized by fervent speculation and worsening affordability amid ultralow interest rates.
Nationwide home sales fell 12.6 per cent in April from March, with even steeper pullbacks seen in the frothy markets of Toronto and Vancouver. The national home price index, which adjusts for volatility, fell just 0.6 per cent last month, although price drops were larger in some parts of Southern Ontario.
Rising interest rates have put a quick chill on a feverish rally. Given that more rate hikes are on the way, many economists say Canada could be in the early stages of a protracted housing slump, albeit one welcomed by would-be buyers who got priced out.
For an economy that increasingly relies on housing, the downturn will likely weigh on economic growth in the near future – not only through direct channels, such as reduced real estate commissions, but in indirect ways, such as weaker spending from households that gorged on mortgages and now face higher debt-servicing costs.
“Unfortunately for Canada, we’re in a pretty perilous situation now where our housing activity measures are extremely stretched. … The pandemic basically put what was already stretched on steroids,” said David Doyle, head of economics at Macquarie Group.
As home sales drop and interest rates head higher, “that does create significant downside risks for Canada’s economy,” he added.
Already the largest industry in Canada, real estate became an even bigger chunk of the economy during the pandemic, largely due to record-low mortgage rates that encouraged rabid buying.
Residential investment, as a share of nominal gross domestic product, soared to about 10 per cent at peak times over the past two years, amounting to more than $240-billion in 2021. That’s up from about 7 per cent of GDP before the pandemic – or double the equivalent rate in the United States. For housing bears, it’s a sign that Canadians have become far too infatuated with real estate, and that the country’s economic fortunes are too tied up with those of the sector.
Total residential investment is comprised of three items: new construction, renovations and ownership transfer costs, which include fees to realtors, land transfer taxes and other transaction costs.
This final aspect of investment is most directly exposed to a slump. Mr. Doyle said the April sales drop, if followed by flatter activity in May and June, could curb GDP growth in the second quarter by as much as 1.5 percentage points, on an annualized basis. If sales continue to drop, the drag would be larger.
And that’s before accounting for the potential knock-on effects of weaker home-buying activity, such as fewer renovations and purchases of household appliances.
In its latest forecast, the Bank of Canada estimated the economy would grow by 6 per cent in the second quarter on an annualized basis. “That feels like a stretch to me,” Mr. Doyle said.
Home construction is an aspect of GDP that could hold up well. The federal government wants to double the pace of home building over the next decade, and other levels of government say they also want to add supply. However, Bank of Montreal senior economist Robert Kavcic doubts construction can get much bigger. He pointed to already strong housing starts and a shortage of available workers.
“Physically, there’s no way we can actually double the rate of home construction from what is already the maximum amount of home construction that we can do in this country,” he said.
That said, Mr. Kavcic doesn’t see residential investment, as a percentage of the economy, heading back to the tepid levels of the 1990s. The fundamentals for housing demand are still strong, he said, in part because Canada is targeting a record intake of permanent residents in the coming years.
“I think the issue here is that through 2021, monetary policy was just too easy for too long,” he said. “So, the asset price just ran ahead of what was fundamentally justified.”
The Bank of Canada has raised its policy rate twice this year, taking it to 1 per cent from a pandemic low of 0.25 per cent. Bank officials have said they intend to raise the benchmark rate into a “neutral” range – which neither stimulates the economy nor inhibits it – of 2 per cent to 3 per cent in fairly short order.
The central bank has warned the Canadian economy is likely more sensitive to rising borrowing costs than it used to be. After taking on loads of new mortgage debt over the past two years, the average household now owes a record $1.86 for every dollar of disposable income. During the pandemic, investors have plowed into the housing market, and a growing share of borrowers have steep loan-to-income ratios.
Ultimately, the concern is that debt-addled households will be forced to tighten their belts and drastically reduce their spending.
“Rising interest rates are designed to slow the economy by making borrowing more expensive. That tends to slow sectors like housing,” said Toni Gravelle, a deputy governor at the Bank of Canada, in a speech last week.
“But this slowing might be amplified this time around because highly indebted households will face high debt-servicing costs and will likely reduce household spending more than they would have otherwise. Our base-case scenario includes a slowdown in housing activity. But we could see a larger-than-expected slowdown due to higher indebtedness and unsustainably high housing prices.”
How those financially stretched households react to higher interest rates could force the Bank of Canada to “pause” its rate-hike cycle, Mr. Gravelle noted.
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Minister Of The Economy Franz Fayot On Luxembourg’s Transition Towards A Green Economy – Forbes
Just last week, Luxembourg’s Minister of the Economy, Franz Fayot, came to the cities of Toronto and Montreal as part of an economic mission organized by the Luxembourg Chamber of Commerce in close cooperation with the Ministry of the Economy. I had the opportunity to sit down with Minister Fayot at the InterContinental Toronto Centre, and get some insights into the Grand-Duchy’s economic transition towards sustainability.
A transitioning economy
With up to one-third of its GDP related to the finance sector, Luxembourg’s economy is widely dominated by the financial sector. However, the past 20 years have been characterized by a push for economic diversification, and increased transparency and regulations following the financial crisis, said Minister Fayot.
“What we are trying to do is diversify [the economy] even more into new sectors to make us less dependent on the financial sector and adaptable to new circumstances,” he said. “We are also more and more developing a green finance sustainable finance sector, which is doing very well.”
A green state responsibility
Minister Fayot, whose guiding principles are a strong welfare state and sustainability, firmly believes that the government must assume its pivotal role in shifting the economy towards sustainability — “both in terms of environmental sustainability, but also social sustainability,” he added.
In June 2020, an international consultation was launched to gather strategic spatial planning project ideas considering the climate-related challenges and social issues, and support for the country’s ecological transition towards a zero-carbon territory by 2050.
“We need to understand that we have to help businesses innovate, and invest in the future,” said Minister Fayot.
A rising startup ecosystem
Luxembourg has seen a steady growth in startups over the past decade.
Earlier this year, the Ministry of the Economy launched a strategic initiative aimed at providing a thorough understanding of the startup ecosystem based on data analysis and interviews with key stakeholders.
Luxinnovation, the national innovation agency, identified over 500 active startups offering innovative digital and data-driven solutions in its latest mapping.
These assessments will also provide relevant comparisons with international markets, and aim to identify the necessary next steps for development opportunities in the upcoming years.
“Our innovation agency is there to guide startups, but also other more established businesses, to get access to grants,” explained Minister Fayot. “We have a state aid framework in Europe which we have to comply with, but the main message is that there is an obvious need to co-finance innovation, particularly in times when we are in this transition towards a more green economy.”
Going above the limits of territory
Surrounded by Belgium, France and Germany, Luxembourg is one of the smallest countries in the world — slightly smaller than Rhode Island. Yet, despite its dependence on its neighboring countries’ energy supplies, it is making continuous efforts to increase its share of renewable energy by also investing in projects across its borders, said Minister Fayot.
“We don’t have that much sun in Luxembourg, and we don’t have an unlimited space to build wind power,” he said. “It’s a bit of a limiting factor, but it shouldn’t excuse anything.”
“We are investing a lot into energy efficiency,” he added. “We are trying to get people to e-mobility and pushing for geothermal heating and energy in new constructions.”
A growing space sector
Luxembourg might not be the first to come to mind when we think of space, but, the country owns one of the world-leading satellite operators, and is increasing its investment into space resources.
“The SpaceResources.lu is an initiative that we launched about six years ago, and it is very much focused on the space resources segment of the space industry,” he said. “We are not launching anything in space out of Luxembourg, but focusing on services like space traffic management.”
As part of the economic mission, a group of space companies participated in a distinctive program set up by the Luxembourg Space Agency in collaboration with the Canadian Space Agency. This included on-site company visits, workshops and B2B opportunities that led to the signing of a Memorandum of Understanding between the two national space agencies.
Stephanie Ricci contributed to this story.
Edmonton needs a nighttime economic strategy, industry advocates say – CBC.ca
Edmonton’s nighttime entertainment and hospitality venues need more support if the city is going to host big events like the Juno Awards next year, industry advocates say.
At a meeting Wednesday, venue operators and business associations called on city councillors and administration to create a special office or person to directly support the nighttime industry.
Puneeta McBryan, executive director of the Downtown Business Association, said the city’s existing economic development staff are overstretched on daytime operations alone, and said that nighttime industries need help.
“Dedicated resources to this are absolutely essential,” McBryan told council’s executive committee. “We’re losing venues. If we haven’t already lost them, we’re at risk of losing them.”
McBryan said that potential gap in venues concerns her as Edmonton gets ready to host the Juno Awards next year.
“I’m frankly really nervous about how many off-site venues we even have to host music events anymore, in our downtown,” she said.
Ward papastew Coun. Michael Janz said he supports the idea of a nighttime economic office and echoed McBryan’s concerns about whether Edmonton will have sufficient spaces for the Junos next year.
“One of the best parts about the Junos is not the awards, it’s the three weeks before and three weeks after when all the visiting artists are coming in and jamming out,” Janz said.
Brent Oliver, a venue programmer and former manager of several music venues in Edmonton, spoke to the committee about the Junos, and said the event needs about a dozen spaces.
“It will likely be a stretch to try and get 11 or 12 venues at this point, and to try and also keep it walkable, I think is very important, which would mean trying to stay downtown,” he said.
Dedicated office would help: advocates
Oliver also made the case to councillors for a designated nighttime economic office and strategy.
“Currently venues like the Starlite Room, theatres like the Citadel, bars and pubs along Jasper Ave. have to jump through various municipal and provincial departments to get permits, approvals, city support, enforcement and licensing,” he said.
He suggested a nighttime economy approach for the arts, sport and hospitality sectors would help businesses navigate issues around operating after work hours.
“Our industry provides so much for Edmontonians and tourism, as well as a significant economic impact on the city,” he said.
Organizers of music festivals, outdoor beer gardens and markets operating outside business hours have no one to call if there are last-minute or unforeseen questions in operating the event, McBryan said.
Oliver said after-hours issues became more obvious during the COVID-19 pandemic.
“Many of my colleagues were left having to speak directly to city council members and elected officials to address issues of funding, safety and support,” he said.
Councillors directed city administration to report back ahead of the 2023-2026 budget cycle in the fall with a model to support the nighttime economy, and consider a designated person like a night mayor, as one of the potential options.
Mayor Amarjeet Sohi acknowledged the need to develop the nighttime economy as part of a thriving city in entertainment, arts and culture.
“And having more eyes on the street in the evening, on the weekends,” Sohi told reporters outside the meeting. “It is important that we have dedicated resources to support the growth of that sector.”
The Alberta government has recently allowed municipalities to create “entertainment districts” within a city, where there could be a suspension of open liquor laws, McBryan said.
Other cities have nightlife economic strategies, a city report shows.
Toronto has a nightlife action plan and the deputy mayor on council is the night economy ambassador, while Ottawa is developing a plan.
Abroad, New York has a night mayor and Pittsburgh has a nighttime economy manager as well as action teams to address nighttime activities in public safety, hospitality, development, transportation, and personal accountability.
London, England, has an extensive strategy that includes a Night Czar, a post-pandemic plan with recommendations on visas, training, creative hubs, safety, and licensing, and a women’s night safety charter.
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