Bank of Canada anticipates housing market revival to drive nearly a quarter of GDP growth
The Bank of Canada has big hopes pinned on a real estate surge to power the country’s economic growth in 2024, forecasting that lower interest rates will spark a sharp increase in housing investment and drive up real GDP.
According to its latest projections, real GDP growth is expected to hit 2.1% next year, up from this year’s 1.2%, with housing expected to deliver 0.5 percentage points of that increase – nearly a quarter of total GDP growth.
This reliance on real estate mirrors the 2021 investor boom, one of the most active housing markets in Canada’s history, and signals the bank’s confidence that rate cuts will entice buyers back to the market.
The forecast, however, raises questions.
Housing was projected to contribute essentially zero to GDP growth in 2024, a subdued outlook that parallels years like 2019 and 2018, when housing’s contribution was also minimal. Still, the central bank’s latest report suggests that housing’s influence on GDP is not only critical but, some say, disproportionate.
For years, Canada’s economy has leaned heavily on real estate, with warnings from policymakers about the risks of such dependence.
Governor Tiff Macklem has acknowledged that that the economy was overly driven by real estate growth. Yet, he said the economy “needed” the surge, even amid concerns of an overheated market. But with few alternatives to jumpstart the economy, the bank appears ready to rely on real estate once again.
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To achieve the forecast, the central bank needs housing demand to reach levels comparable to the 2021 boom, a tall order given today’s more cautious market.
Housing is expected to contribute essentially 0% to GDP in 2024, a conservative figure that mirrors pre-pandemic years like 2019 and 2018.
However, the broader economic climate has shifted, with population growth slowing and housing costs already stretched thin. Although the BoC’s forecast suggested that housing could offer a lifeline to GDP, it’s not a guaranteed outcome.
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