Canadian housing investment is falling back to earth after pandemic measures spurred a record-setting run earlier this year.
While real estate prices remain high across the country, residential investment — a three-pronged measure of home renovation, new construction and ownership transfer costs — plummeted during the third quarter.
According to Statistics Canada’s (StatCan) latest GDP income and expenditure report, seasonally adjusted residential investment fell 7.1 per cent ($17.7 billion) from the previous quarter to $231.2 billion.
COVID-19 lockdowns and work-from-home mandates caused a surge in real estate investment as Canadians sought larger homes on the resale market, fixed up their current ones, or opted to build.
Residential investment actually surpassed business investment as a share of Canada’s GDP during the course of the pandemic. However, that trend has shifted due to decreased sales, delayed construction projects, and a return to pre-pandemic spending patterns.
Following the second quarter’s record-setting mark of nearly $250 billion, a reduction in housing investment was anticipated as pandemic uncertainty eased and COVID case numbers dropped, although the size of the shift is notable.
Seasonally adjusted home renovation spending fell to $73.3 billion during the third quarter, down 11.6 per cent ($9.6 billion), marking the biggest quarterly decline since 1974.
New construction, the largest of the three residential investment subcomponents, dropped to a seasonally adjusted $102.7 billion in the third quarter, down 2.6 per cent ($2.8 billion) from the previous quarter.
According to StatCan, after adjusting for inflation new construction saw a 5.2 per cent dip, the largest since 2009. While rising costs played a role, part of the decrease could also be attributed to construction delays related to supply chain disruptions and labour shortages.
Ownership transfer costs — a tally of realtor commissions, land transfer taxes and legal fees — was one of the key drivers of residential investment earlier this year as sales figures soared.
Reduced resale activity pushed transfer costs down 8.8 per cent ($5.3 billion) to a seasonally adjusted $55.2 billion during the third quarter. The numbers were down nationwide, with only Newfoundland and Labrador and Yukon reporting higher figures than the previous quarter.
While housing investment was on the downswing, StatCan noted that Canadian household spending on semi-durable goods and services rose 14 per cent and 6.3 per cent, respectively, during the third quarter as pandemic restrictions eased.
Clothing and footwear spending exceeded pre-pandemic levels, increasing by more than 25 per cent from the previous quarter, while transport (40.3 per cent) and personal grooming (35.8 per cent) led the way on the service side.
