While housing activity has been vital to Canada's economic recovery, there are lopsided investment figures
A former head of Canada’s central bank has warned that the inflamed housing market is gobbling up investment funds that could be much better utilized in assets that could boost the economy’s productivity.
David Dodge, who previously served as governor of the Bank of Canada, said that intensified housing activity has been vital to Canada’s economic recovery from the worst of the pandemic doldrums.
In May alone, Canada’s home sales activity was up by 103.6% annually and the average sales price was up by 38.4%, according to the Canadian Real Estate Association.
Additional data from the Canada Mortgage and Housing Corporation showed that the national housing starts trend stood at 280,779 units in May, recovering from 278,462 units in April.
“The very high level of construction that we’re seeing in the residential sector is indeed likely to continue for a little while,” Dodge said in an interview with BNN Bloomberg. “Our problem is not that we’ve not done the residential investment … our problem is that the investment that we’ve been making has been poured into housing, and not enough has been poured into machinery and equipment and intellectual property, which will actually raise productivity and output in the future.”
Read more: Analyst: Economy’s dependence on housing activity poses grave risks
Correcting the lopsided flow of investments into the Canadian financial system would require a concerted response from policymakers and stakeholders, Dodge stressed.
“It’s incumbent on both sides, business and government, to make a much bigger effort and recognize that the only way forward to rising standards of living is that we raise our output in this country and that means devoting more of our current resources to investment in the future and less to consumption,” Dodge said.
