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Economy

Opinion: To revive Canada’s economy, housing prices must fall, property investors must take a hit

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A homeless encampment in Toronto on Dec. 10, 2020.Chris Young/The Canadian Press

John Rapley is a political economist at the University of Cambridge and the managing director of Seaford Macro.

Canada’s economy is struggling just now, beset by both a housing crisis and a growth rate so low that real per capita income is falling. But what many of us don’t know is that the first problem is a principal cause of the second – which is to say, Canadians on average are getting poorer in no small measure because property investors have got richer. There’s probably no way around it: to revive the economy and overcome the housing crisis, property investors will need to take a hit, at least in relative terms.

Politicians don’t like to admit this. Prime Minister Justin Trudeau did say that “house pricing cannot continue to go up.” But what about bringing prices back down? When he became federal housing minister, Sean Fraser had said he wanted to fix the housing crisis without lowering house prices. His statement reflected what seems to be a widespread view that the private sector can be left to supply new houses for the market, leaving the public sector to focus on homelessness and concentrate its resources on building social housing. That way there would be minimal disruption to the demand and supply conditions in the property market.

But this is flawed logic. Trying to rope off public and private markets is no easy task. It was a feature of centrally planned economies in the Soviet bloc, and the prices in one part of the market eventually affected those in the other, whether legally or in a shadow economy. Research suggests that once the supply of housing increases, regardless of the segment of the market in which it is built, prices are depressed across the board. And lo and behold where it has been possible to ensure the supply of new housing has risen, prices have fallen, with Minneapolis, Minn., being a celebrated recent case.

Some worry that falling house prices would harm the economy, given the weight of the sector. But that’s just the point: if real estate is too big to fail, it’s too big. Think of it the other way around. If renters or homebuyers had to pay less for accommodation, they’d have more left over to spend on other things. So, too, businesses that had to pay less for their premises would have more left over for reinvestment in the enterprise. In fact the case of Minneapolis, one of the cities with America’s lowest inflation rates, reveals the economic benefits of such an approach.

The structure of the economy determines how resources are allocated. And right now, Canada is allocating a lot of its income to a sector that produces little output. Shifting resources away from rent-seeking toward productive activities would cause short-term pain in the rent-earning part of the economy. However, it would also improve the prospects of the broader economy accelerating.

Editorial Board: A fairer way to share the costs of ending the housing crisis

I recently had coffee with a lawyer who advocates for the implementation of the right to housing. This would require legislative regulation of property investors like REITs or private equity funds, requiring them to strengthen tenancy rights or allocate a significant percentage of affordable units for lower-income households before getting planning permission or regulatory approval for new products or construction. Such proposals trigger the usual objections – that they violate the property rights of owners, or they reduce local democracy by removing the ability of owners to object to new developments in their community.

Such arguments hold little water, though. Regulatory measures don’t affect property rights, they affect the structure and conditions of the market in which owners operate. They exist everywhere. Canada’s regulatory and policy environment happens to favour investors, but that’s a political choice, not a function of the market. Other countries, such as Singapore, have built thriving market economies amid highly regulated real estate sectors.

Meanwhile the argument for democracy, while oft heard, barely withstands scrutiny. Allowing existing property owners the power to block new developments is less akin to democracy than oligarchy, as it amounts to assigning special powers to people based on their property ownership – in effect, a property franchise. And if they use the power to block other people gaining the right to own property, they are limiting those people’s right to an effective franchise, which is the essence of democracy. Western countries scrapped property franchises a long time ago. Trying to restore them through the back door should be called out for what it is: anti-democratic.

What fascinated me most about my conversation with the lawyer was that while she and I began from completely different starting points, we arrived at a similar destination. She approaches housing as a human rights issue, I see it as an economic one. When I look for the causes of Canada’s economic funk, I keep coming up against the housing crisis.

An abundance of affordable housing for all would lower infrastructure costs, thereby increasing labour mobility to produce more efficient resource allocation, enabling Canada to better exploit the economies of agglomeration that will be essential to the knowledge-intensive production that must be our future.

 

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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