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White Hot North: Residential Real Estate Investment in Canada

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residential real estate investment

The Briefing

  • Residential investment made up 9.3% of Canada’s GDP as of Q4’2020
  • For context, U.S. residential real estate investment peaked in 2006 at 6.7% of the country’s GDP (just before the infamous housing crash) and it currently sits at 4.3%

White Hot North: Residential Real Estate Investment in Canada

Residential real estate is breaking records in Canada. As of Q4’2020, it accounted for 9.3% of the country’s GDP.

The purchase, sale, and construction of new homes in Canada currently makes up more of the country’s economy than it does in any other developed country.

There’s No Place Like Home

So why is there so much investment going into building residential structures? Here’s a look at just a few reasons:

  • Increased immigration to Canada
  • Falling mortgage rates
  • Increased saving rates

The steady flow of immigration into Canada is a significant factor behind increased residential real estate investment. Prior to the pandemic, the country welcomed around 300,000 newcomers per year—increasing the demand for housing, particularly in urban hubs like Toronto and Vancouver.

Mortgage rates have also been steadily falling, making it easier to purchase a home. As of the latest 2020 data Canadian 5-year uninsured mortgage rates sat at 2.1%, compared to a steep peak in the beginning of 2019 at 3.7%.

Additionally, some individuals may have become more capable of affording a new home as increased saving rates have become a widespread trend during the pandemic, potentially adding to demand. This combined with increasingly flexible remote work options are increasing real estate activity around the country.

Higher Stress Tests

The increased demand has caused prices to skyrocket. As it stands now, if the housing bubble doesn’t burst, prices will continue to rise, and could become a major wedge separating those who can afford the increasing prices and those who cannot.

Two major Canadian cities—Vancouver and Toronto—are already among the least affordable cities in the world due to low vacancy rates and the immense demand.

According to CBC, the country’s top banking regulator is making a proposal to raise the mortgage stress test level. The idea is to raise it to 5.25% or 2 percentage points above the market rate, whichever is higher. This would be up from the current rate of 4.79% posted rate at Canada’s biggest lenders.

Borrowers will have to prove their ability to take out a loan at the higher rate, regardless of the lender’s ability to provide the loan at a lower one, in order to relieve some of the pressure on housing prices.

Where does this data come from?

Source: Stats Can, Better Dwelling
Notes: The definition of what constitutes residential construction includes major renovations, construction, and ownership transfer fees.

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Datastream

U.S. Military Spending vs Other Top Countries

The U.S. is well known for its enormous defense budget, but how does it compare to the rest of the world’s military spending?

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u.s. military spending

The Briefing

  • U.S. military spending surpassed $778 billion in 2020.
  • The U.S. spends more on its military than the next nine highest spending countries combined.

U.S. Military Spending vs Other Top Countries

The U.S. is well known for its immense military and defense spending. In 2020, the nation ranked #1 in the world in terms of military spending at $778 billion outpacing the next nine highest spenders, which came out to $703.6 billion combined.

One factor is the military–industrial complex (MIC) which feeds into the U.S.’ defense dominance, with a longstanding tradition of the defense and weapons industries working closely with the U.S. government and armed forces.

A Breakdown of U.S. Military Spending

So what are these billions being spent on?

The U.S. Department of Defense (DoD) laid out the spending plan when they made their 2020 budget proposal. It included a few main areas to invest in, including:

  • Air – $57.7 billion
  • Maritime – $34.7 billion
  • Ground systems – $14.6 billion
  • Space – $14.1 billion
  • Cyber – $6.9 billion

This is just the tip of the iceberg. The overall goal of the 2020 budget was to promote innovation and to strengthen competitive advantages to increase the military’s ‘readiness’ factor. Additionally, in an effort to sustain forces, a military pay raise of 3.1% was included.

Military Maintenance

Surprisingly, however, the U.S. actually does not have the largest military in the world in terms of personnel, and some of the other top 10 countries have larger or similarly sized militaries spread across different branches.

CountryActive MilitaryReserve MilitaryParamilitaryTotal Military
🇷🇺 Russia1,013,6282,572,5002,310,8595,896,987
🇺🇸 United States1,374,699845,0002,918,1615,137,860
🇮🇳 India1,440,0002,096,0001,585,9505,121,950
🇰🇷 South Korea599,0003,100,000900,0004,599,000
🇨🇳 China2,035,000510,0001,500,0004,045,000
🇫🇷 France202,70072,300103,400378,400
🇯🇵 Japan247,15056,00013,740316,890
🇸🇦 Saudi Arabia227,000024,500251,500
🇬🇧 United Kingdom150,25082,6500232,900
🇩🇪 Germany178,60027,900500207,000

Russia is only the fourth highest spender, but they have the largest military size of any of the top 10, at around 5.9 million personnel.

All of these countries have militaries that number in the hundreds of thousands to millions, and many are a part of treaties and alliances that require them to upkeep their armies and weaponry — but none spend half as much as the U.S.

To this day, the U.S. is actively involved in a number of overseas conflicts and maintains a large military force with millions of personnel. Spending on areas such as weaponry and wages is significant in order to maintain jobs, as well as national defense.

Where does this data come from?

Source: SIPRI.

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Datastream

Tax-to-GDP Ratio: Comparing Tax Systems Around the World

Using the tax-to-GDP ratio, we compare the tax systems of 35 OECD countries. See which nations have the highest and lowest rates.

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The Briefing

  • The tax-to-GDP ratio measures a country’s tax revenue, relative to the size of its economy (measured by its Gross Domestic Product, or GDP)
  • A higher tax-to-GDP ratio means more money is going to government coffers, and in theory, public services like education and infrastructure
  • Out of 35 OECD countries, Denmark has the highest tax-to-GDP ratio at 46.3%, while Mexico ranks last at 16.5%

Tax-to-GDP Ratio: Comparing Tax Systems Around the World

Taxes are an important source of revenue for most countries. In fact, taxes provide around 50% or more of government funds in almost every country in the world.

How does each country’s tax system compare to one another? This question is tricky to answer. Since countries’ populations and economies differ greatly, measuring total tax revenue is not the best way to compare international tax systems.

Instead, using a tax-to-GDP ratio is one of the more useful ways to compare tax systems around the world.

What is the Tax-to-GDP Ratio?

The tax-to-GDP ratio compares a country’s tax revenue to the size of its economy, which in this case is measured by its GDP.

The higher the ratio, the higher the proportion of money that goes to government coffers. If managed effectively, this can support the long-term health and prosperity of an economy. According to research conducted by the International Monetary Fund, countries should have a tax-to-GDP ratio of at least 12% in order to experience accelerated economic growth.

The countries that are part of the Organisation for Economic Co-operation and Development (OECD) all meet that threshold, with an average tax-to-GDP ratio of 33.8%.

Ranked: The Tax-to-GDP Ratios of OECD countries

The dataset used for this graphic looks at 35 of the 37 OECD countries, since recent data for Australia and Japan was not available.

RankCountryTax Revenue as % of GDP
1🇩🇰 Denmark46.3%
2🇫🇷 France45.4%
3🇧🇪 Belgium42.9%
4🇸🇪 Sweden42.9%
5🇦🇹 Austria42.4%
6🇮🇹 Italy42.4%
7🇫🇮 Finland42.2%
8🇳🇴 Norway39.9%
9🇳🇱 Netherlands39.3%
10🇱🇺 Luxembourg39.2%
11🇩🇪 Germany38.8%
12🇬🇷 Greece38.7%
13🇸🇮 Slovenia37.7%
14🇮🇸 Iceland36.1%
15🇭🇺 Hungary35.8%
16🇵🇱 Poland35.4%
17🇨🇿 Czech Republic34.9%
18🇵🇹 Portugal34.8%
19🇸🇰 Slovak Republic34.7%
20🇪🇸 Spain34.6%
21🇨🇦 Canada33.5%
22🇪🇪 Estonia33.1%
23🇬🇧 United Kingdom33.0%
24🇳🇿 New Zealand32.3%
25🇱🇻 Latvia31.2%
26🇮🇱 Israel30.5%
27🇱🇹 Lithuania30.3%
28🇨🇭 Switzerland28.5%
29🇰🇷 South Korea27.4%
30🇺🇸 United States24.5%
31🇹🇷 Turkey23.1%
32🇮🇪 Ireland22.7%
33🇨🇱 Chile20.7%
34🇨🇴 Colombia19.7%
35🇲🇽 Mexico16.5%
OECD Average33.8%

At 46.3%, Denmark has the highest ratio on the list. The country puts its relatively high tax revenue to use, particularly when it comes to subsidizing post-secondary education—in Denmark, university is free for all EU citizens.

On the less-taxed end of the spectrum, the U.S. ranks 30 out of 35, with a ratio of 24.5%—that’s notably lower than the OECD average of 33.8%. It’s also worth mentioning that the U.S. has one of the highest GDP per capita measures out of all OECD countries.

Where does America’s tax revenue come from? It gains most of its revenue from the personal income tax. In fact, 41% of the country’s total tax revenue comes from taxes on personal income, as well as individual profits and gains—for context, the OECD average is 24%.

With President Biden’s recent announcement to increase corporate taxes and personal investment gains, America’s ratio could look a lot different in the near future.

>>Like this? You might find this article interesting, Unequal State Tax Burdens Across America

Where does this data come from?

Source: OECD
Details: This source uses 2019 provisional data to calculate each country’s tax-to-GDP ratio. For more information on methodology, read the full report by clicking here.

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