The economic impact of real estate transactions in Canada

It’s no secret that the housing sector in Canada has been strong and leading the economic recovery since the last recession. Both new housing starts and sales of existing homes through MLS® Systems have been buoyant in recent years, although both sectors eased slightly in early 2013.

But just how important has the housing sector been to the revitalization of the Canadian economy? Tremendously! In this post, I explore recent research that points to the important role that resale homes play in the Canadian economy.

It’s easy to understand that new home building, and associated activities like the development of streets, school, parks and community centres that come with new development, creates economic activity. You can see the jobs created by the construction workers on site, the truck drivers, architects, etc. Moreover, the wood, bricks, steel, glass and other materials manufactured in this country and transported to building sites also have an obvious economic impact.

But a housing resale is a transaction between two parties of a home that was built, sometimes years before. In a good transaction, both parties will benefit, but does this also have spin-off benefits to the rest of us in the economy? Yes, according to our recent research at Altus Group for The Canadian Real Estate Association, which tracks the many ties between resale housing transactions through MLS® Systems and the broader economy.

All told, some $22.5 billion per year of ancillary spending has been generated as a result of purchases and sales of homes through MLS® Systems over the 2010-2012 period. Moreover, an estimated 176,420 jobs per year were also supported by this activity.

It turns out there are lots of things that home buyers spend money on – spending that is incremental to normal annual spending by households. Over the first few years following a purchase, home buyers spend on a wide array of goods and professional services, such as furniture, appliances, general household purchases such as bedding, towels, lighting fixtures, tools, blinds etc., legal fees, appraisals, etc. Also, buyers have moving costs and pay considerable taxes to governments, including land transfer taxes in many jurisdictions.

Over and above all of these obvious spending items is renovation. Most homeowners in Canada spend something on renovation and repair every year, but recent buyers spend a lot more on renovations than the rest of us, up to $9,075 extra over the first few years that they own a home.

All this spending, of course, is good for the economy, and given that recent home sales through MLS® Systems have averaged about 452,500 units per year, it adds up to a tremendous boost to Canada’s underlying rate of growth.

Importantly, even if housing sales ease, the economic impacts from recent sales will continue to provide a boost to the economy, given the lags (say, the time between move in, and the decision to undertake renovations), so there will continue to be positive impacts on the economy from recent activity well into next year.

Peter Norman is a well-known professional land economist and forecaster and is Chief Economist at Altus Group and General Manager of Altus Group Economic Consulting. Widely quoted in the Canadian media, Peter is a frequent expert witness on economic matters and consults for private and public sector organizations across Canada, providing economic intelligence and strategic advice. He lives with his wife and four children in Toronto.

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