Housing Investment Projected to Weigh Down Canada Growth by 2018

(Bloomberg) -- Canada’s housing sector will soon become a drag on growth as the number of new homes decline, according to the country’s budget watchdog.

The independent Parliamentary Budget Officer forecast in a report Tuesday that residential investment will subtract from economic growth from 2018 to 2020.

Policy makers have been introducing measures in recent months to slow growth in the country’s two hottest markets, Toronto and Vancouver, with the province of British Columbia imposing a tax on foreign buyers in the latter. Real-estate activity in the two cities is diverging as a result. Average prices around Toronto rose 23 percent in November from a year earlier, while sales also soared. Sales in Vancouver, meanwhile, have declined steadily, falling 37 percent last month compared to the prior year.

Housing has buoyed Canadian GDP growth in recent years. The budget office projected the sector would provide modest boosts to growth through 2017 before turning negative. In 2018, the watchdog expects residential investment to subtract 0.2 percentage points from GDP growth, followed by 0.4 percentage points in 2019 and 0.1 percent in 2020. 

The Bank of Canada has forecast housing to subtract 0.2 percentage points from growth in 2017, but add 0.1 percentage points in 2018.

During Canada’s housing boom, new supply outstripped new demand for a decade through 2011. However, from 2012 to 2015, demand exceeded supply, the budget officer forecast.

New housing completion is set to peak in 2017 at 198,900 units before declining to an average of around 170,900 units from 2019 to 2021, according to the budget officer.

To contact the reporters on this story: Erik Hertzberg in Ottawa at eschmitzhert@bloomberg.net, Josh Wingrove in Ottawa at jwingrove4@bloomberg.net. To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Stephen Wicary