A reader shared a great post from an Australian who was contrasting their situation with Canada’s.
As I’ve highlighted previously, Canada's labour productivity has declined sharply in recent years, especially when compared with the US.
Some of the the declining productivity in Canada and Australia is due to the reliance on housing and immigration to drive growth. The government figured out it was the path of least resistance to show continued strong growth and real productive industry was an afterthought. Canadians and Australians levered up along the way. Australia and Canada doubled-down on housing after the GFC, whereas the United States chose to focus on the real economy and innovation instead.
The total value of residential housing stock in 2023 was:
Australia 3.9 times GDP
Canada 3.1 times GDP
US 1.8 times GDP
Australia and Canada's populations grew by 32% and 24%, respectively, between 2005 and 2023. These increases were much higher than the 13% growth in the United States.
This stronger population growth has required Australia and Canada to dedicate a larger share of their economy’s output on housing construction.
These shortcuts have caused GDP to rise and GDP per capita to fall. A hole to claw out of. Exporting natural resources may be the path of least resistance but Canada needs to attract investment across industries and develop a more dynamic economy.
Canada has experienced “capital shallowing”, which occurs when business and infrastructure investments fails to keep up with population expansion, resulting in less capital per worker.
Labour productivity in Canada’s construction industry has collapsed to its lowest recorded level in Q2 2024. Unfortunately, we aren’t even excelling at the industry that we’ve decided to double down on.
In the last 15 years, condo prices in Toronto have increased relentlessly. A developer group broke down the change in costs from 2005 to 2019 to build a condo(full article). I’m told that all price appreciation in recent years has been captured by development charges (taxes) and the trades. The crazy part is, development charges have doubled in some municipalities since this article was written.
One of the solutions to our problem is building new affordable supply but we are making it impossible for developers to do that. From 2005 to 2019, costs increased 139% and revenues rose 118%, but profit margin fell sharply by 45%, from 24% to 13%.
Looking at development charges in the City of Toronto. A 10x increase since 2010. Since the analysis above was completed in 2019, development charges on homes and townhouses have doubled again.
It is not only a city of Toronto problem, it is awful across Ontario. Municipalities have become reliant on development charges as a source of funding but this only makes housing more expensive. How are you supposed to build an affordable single family home with a $200k development charge.
Higher taxes aren’t going to create affordable supply. As recently as 15 years ago, Canada built more single family homes than apartments. Today, we build 4x more apartments than single family homes. We aren’t building the proper housing stock to incentivize family formation.
With the economy’s reliance on housing and interest rates bringing new development to a halt, unemployment rates for young males are increasingly looking like a Southern European nation. Additionally, immigration without the employment opportunities is leaving entry level jobs difficult to find.
Limited job prospects, overpriced housing, languishing prosperity has seen young people flip from supporting the Liberals to Conservatives. Hopefully, a new government can begin turning this ship around.
Likely will take a change in government and fresh ideas, to really attack the housing problem and Canada's declining productivity.