Sherry Cooper is chief economist at Dominion Lending Centres.
As the federal government prepares to unveil its budget, Prime Minister Justin Trudeau's Liberals will have their first shot at trying to fix Canada's struggling economy. The importance of this event on the government calendar should not be understated.
Ipsos reported recently that confidence in the Canadian economy is at its lowest level in 20 years – just 36 per cent of respondents are confident in our country's economic future, a precipitous drop from the 65 per cent who reported confidence last July. More startling is that according to the same poll, confidence has fallen even further than during the depths of the global recession, when it hit a low of 43 per cent at the end of 2008.
Unemployment, especially in the all-important energy sector, is reaching scary heights. Nationwide, the jobless rate hit a three-year high in February (7.3 per cent), and it could move higher. Furthermore, I'm not convinced that the recent uptick in oil prices is sustainable, which would mean continued weakness in energy-producing provinces.
While it's clear that the beleaguered energy sector is driving these unemployment highs, there is one strong facet of the current Canadian economic climate: housing in British Columbia and Ontario, driven by Toronto and Vancouver. The government would do well to avoid stunting the growth in that sector given the fragile economy.
The growth in housing values in British Columbia and Ontario is based on fundamentals. These are the two regions of the country where unemployment has fallen. Both provinces are enjoying a population influx of Canadians, benefiting from the migration of people from Alberta. as well as from immigration of foreigners. Regardless of what's happening in the other parts of the country, Canadians seem to have confidence in these regions.
Housing, particularly in the Toronto and Vancouver markets, remains one of the pillars of the Canadian economy. While I do not expect the recent explosive price growth, especially for detached single-family houses, to continue at its recent pace, the likelihood of a price collapse any time in the foreseeable future is remote.
Housing affordability in these two cities has been a concern. Canadians would, however, suffer if governments imposed sufficient regulation to trigger a collapse in housing prices in Toronto and Vancouver. Financial institutions, as well, would be adversely affected and the overall dampening effect on the economy as a whole would be highly deleterious. It would have a negative effect not just on the economy, but also on household net worth and consumer spending, which still accounts for two-thirds of the economy.
The data support this: Despite high prices, there is growth in the number of first-time buyers in the 25-to-35-year-old age group. First-time buyers are still out there buying; in fact, they represent something like 30 per cent of housing sales in the country – even in Toronto and Vancouver. Demand among millennials is there. Meanwhile, new condo construction is keeping the supply more closely aligned with demand, preventing runaway price escalation and injecting needed expenditures and jobs into the economy.
Affordable housing is a social issue for sure, but remember that almost 70 per cent of Canadian households own their own homes. We are a home-ownership society. While many are concerned about the record level of household debt, it is important to keep in mind that roughly 25 per cent of Canadian homeowners have no mortgage at all. Among the rest, only an estimated 8 per cent or so are seen to be overindebted. As well, household balance sheets have improved over all as household wealth has grown faster than indebtedness.
The housing industry is a strong feature of the Canadian economy right now and excessive government restriction could risk kicking out that solid leg of our economy.