The Canadian economy has a problem: real estate. A relatively unstable industry, the Canadian real estate market, especially in the Vancouver area, is reaching new heights of inaccessibility. Inflated home prices are leading to fewer purchases and sales, which could spell danger for the Canadian economy. According to CBC, real estate fees, including commissions, land transfer taxes, legal costs, and inspection costs, comprise 1.9% of Canada’s GDP. By comparison, agriculture, forestry, fishing, and hunting account for just 1.6%.
If this trend sounds familiar, it’s because this has happened before. The United States relied heavily on home ownership transfer fees in 2005, when their real estate market peaked. In the wake of America’s housing and financial collapse, the country’s economy grew to rely less on the real estate industry. However, Canada’s market is even further entrenched than America’s was in 2005. Real estate fees comprise nearly 2% of the country’s GDP; in 2005, they made up only 1.5% of the U.S. GDP. Years after America’s housing market crash, this type of transfer fee comprises less than 1% of the U.S. GDP.
Canada’s increased reliance on real estate fees is, in part, due to years of incredibly low interest rates. The Bank of Canada cut rates further during the oil price slump, though that decision was in and of itself the lesser of two evils. Currently, home prices are continuing to rise, and fewer Canadians are buying homes. Additionally, people are relying more heavily on real estate loans in order to purchase houses, increasing both personal and national debt. Eventually, economists argue, the entire Canadian economy could feel a drag from falling home sales and decreased real estate fees.
While Canada’s real estate market bubble—especially in the Vancouver area—is threatening to pop, nearby Seattle is doing what it can to keep housing affordable. Though the area is still notoriously expensive, certain companies are working to reduce the fees associated with buying and selling homes. TRELORA, for example, is a flat fee real estate company; rather than providing brokers with 2.8%-6% of the sale price of a home, clients simply pay a one-time listing fee of $2,500. TRELORA customers have an average of $12,500 per sale, but Seattle’s already-inflated market likely means additional savings. Though this company only operates in the United States, services like this could significantly improve the wellbeing of the Canadian housing market. If anything, it could reduce the economy’s reliance on real estate fees, further separating the greater economy from the relatively unstable real estate market.