Canadians are paying a lot more for a lot less, even when it comes to construction investment. Statistics Canada (Stat Can) data shows that investment in building construction ended the year much higher in December. Before getting too excited, a quick dive past the headlines into the agency’s data in real (inflation-adjusted) terms tells a very different story. The vast majority of investment growth is being consumed by inflation. Since rates hit a record low in 2020, over 70% of investment in building construction growth was non-productive. Bluntly put, the stimulus is making each dollar less effective at actually producing anything.
Canadian Investment In Building Construction Ends The Year Higher
Canada’s headline investment in building construction has been fairly robust. The agency’s reported seasonally adjusted monthly growth added 1.9% (+$408.1 million) to $21.8 billion in December. The month was a whopping 4.7% higher than last year. It sounds like an astronomical increase from just a few years ago, but unfortunately it doesn’t mean quite the same thing as it used to.
Stripping away inflation reveals growth has been much leaner in recent years. The annual rate of 4.7% falls down to 1.6% in real terms, attributing 3.1 points to inflation. Roughly 50% more inflation in the segment than headline CPI implied but let’s just move onto the seasonal adjustment. In real, unadjusted terms—annual growth comes in at just 1.2% for December. Growth is good, but it’s clear that inflation requires a little more of a dive.
Inflation Killed Most of Canada’s Investment In Building Construction
Canadian investment in building construction in both current and real dollars.
Source: Stat Can.
Canadian building investment is booming at a high level, but the devil’s in the details. From April 2020 (the first full month of rock bottom rates) to December 2024, the monthly growth came in a whopping 86.7% higher. However, adjusting for real terms brings that growth down to just 24.28% over the same period. Nearly 3 in 4 dollars (72%) of building construction growth was non-productive inflation. In other words, only a quarter of the growth contributed to building more.
The problem highlights the complex productivity issue that Canada is facing. Rather than investing in productive growth, it relies on credit-based stimulus for certain industries like housing. While it may sound like a good idea, building beyond the capacity of the country’s current infrastructure doesn’t produce more. It drives costs higher as producers compete for the same labor and materials. Ironically, this has the exact opposite effect that most people believe would happen. Though it doesn’t appear this was an accident.
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