Photo: James Bombales

Bearish observers have caught the scent of the Canadian economy’s reliance on real estate. But a Toronto-based credit-rating agency suggests Ontario and BC’s labour markets — a key pillar of an economy — can withstand the effects of home-price corrections.

“In the context of solid economic growth and steady population gains, the labor markets in both provinces are likely to absorb a potential home-price correction without major disruption,” writes DBRS in a new report titled “Employment Risks in Canada’s Imbalanced Housing Markets.”

In the report, DBRS compares “housing-related employment” in Ontario and BC from June 2007 to June 2017 with levels recorded in several US states from 1996 to 2006 — or the point where US home prices peaked.

For DBRS’s research purposes, housing-related employment includes construction work, jobs at home-supply retailers and positions in the finance and real estate sectors.

Chart: DBRS

Over a 10-year boom period in Canada, Ontario and BC’s cumulative housing-related employment surged 28 per cent. That’s “much faster” expansion than what was observed in other Canadian provinces.

In particular, the share of real estate-related employment in Ontario’s labour market increased from 9 per cent to 10.2 per cent over that period, while in BC the share grew from 9.9 per cent to 10.9 per cent.

It’s a sign that housing market employment could be exceeding long-term demand fundamentals, and there are risks associated with that. “The more labor resources are misallocated during the housing boom, the more vulnerable the jobs market is when the housing cycle turns,” DBRS cautions.

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“Housing-related employment, however, has not expanded as fast as in some US states during the US housing boom,” the credit-rating agency notes.

Take California and Florida, for example. In the Golden State, housing-related employment soared 61 per cent from 1996 to 2006, while the Sunshine State saw it swell by 60 per cent.

“Though there are signs that the housing market has spilled over into the local labour markets, Ontario and BC do not exhibit the clear labor market imbalances seen in some US states during the US housing boom,” DBRS says.

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