World Economy

Housing Problems Dent Canada Economy, Hurt Middle Class

Real estate observers fear the housing status might  negatively affect the economy.Real estate observers fear the housing status might  negatively affect the economy.

According to the Organization for Economic Cooperation and Development, debt and high housing prices are the reasons why households in Canada are vulnerable.

According to the organization, Canada’s economy has become a bit more stable despite the fall in commodity prices. The country’s GDP is forecast to grow by 2.1% next year; this prediction is a bit higher than the Bank of Canada, hibusiness reported.

However, the middle-class families in the cities of Vancouver and Toronto are in a predicament due to increasing housing prices.

The OECD supports the federal fiscal stimulus plan, and has been quoted as saying that the Canadian government should “increase federal investment in physical infrastructure, social housing, education and innovation, as planned.

” The OECD Secretary General Angel Gurria urged other countries to use the fiscal tools available to boost growth. The global economy has the prospect of modestly higher growth, after five years of disappointingly weak outcome,” he said.

“In light of the current context of low interest rates, policymakers have a unique window of opportunity to make more active use of fiscal levers to boost growth and reduce inequality without compromising debt levels.”

Last year, Canada was suffering due of low oil prices but the economy is beginning to come up again. While business investment has fallen quite greatly in the energy sector, and unemployment is up in oil-producing provinces, the OECD said other areas of the economy are making up for it. A lower loonie, flexible labor markets and monetary and fiscal policy are supporting the shift towards non-resource production, especially in the export sector, it said.

Real estate observers are in fear that the present housing status might in future negatively affect the general economy. The short level of supply in the housing sector is becoming a major concern for not only the sector but the country as a whole.

According to a report released by the independent Parliamentary Budget Officer, residential investment will contribute little to economic growth from 2018 to 2020. This is a bad sign for the economy as the real estate sector in the past has contributed immensely towards economic growth.

The federal government had made attempts to address the housing crisis but with little outcome although many are still hopeful that the effects of the new policies made by the government will be seen in 2017.

What is quite known is that the new laws have in some cases led Canada’s two most expensive markets, Toronto and Vancouver into separate paths.  While the average home prices in Vancouver began to decline in October by 37%, the average home price in Toronto increased by 23% in November.

Residential investments have in the past given a lift to the Canadian economy and although it is predicted that during the first few months of 2017, housing will contribute a modest raise towards the economy, this will however take a turn in the following months unto 2018.

As the years continue, the contribution of the housing sector towards economic growth will steadily decrease.


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