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Economy

Ottawa’s homebuilding plans might discourage much-needed business investment

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From the Fraser Institute

By Steven Globerman

In the minds of most Canadians, there’s little connection between housing affordability and productivity growth, a somewhat wonky term used mainly by economists. But in fact, the connection is very real.

To improve affordability, the Trudeau government recently announced various financing programs to encourage more investment in residential housing including $6 billion for the Canada Housing Infrastructure Fund and $15 billion for an apartment construction loan program.

Meanwhile, Carolyn Rogers, senior deputy governor of the Bank of Canada, recently said weak business investment is contributing to Canada’s weak growth in productivity (essentially the value of economic output per hour of work). Therefore, business investment to promote productivity growth and income growth for workers is also an economic priority.

But here’s the problem. There’s only so much financial capital at reasonable interest rates to go around.

Because Canada is a small open economy, it might seem that Canadian investors have unlimited access to offshore financial capital, but this is not true. Foreign lenders and investors incur foreign exchange risk when investing in Canadian-dollar denominated assets, and the risk that Canadian asset values will decline in real value. Suppliers of financial capital expect to receive higher yields on their investments for taking on more risk. Hence, investment in residential housing (which the Trudeau government wants to promote) and investment in business assets (which the Bank of Canada warns is weak) compete against each other for scarce financial capital supplied by both domestic and foreign savers.

For perspective, investment in residential housing as a share of total investment increased from 22.4 per cent in 2000 to 41.3 per cent in 2021. Over the same period, investment in two asset categories critical to improving productivity—information and communications equipment and intellectual property products including computer software—decreased from 30.3 per cent of total domestic investment in 2000 to 22.7 per cent in 2021.
What are the potential solutions?

Of course, more financial capital might be available at existing interest rates for domestic investment in residential housing and productivity-enhancing business assets if investment growth declines in other asset categories such as transportation, roads and hospitals. But these assets also contribute to improved productivity and living standards.

Regulatory and legal pressures on Canadian pension funds to invest more in Canada and less abroad would also free up domestic savings for increased investments in residential housing, machinery and equipment and intellectual property products. But this amounts to an implicit tax on Canadians with domestic pension fund holdings to subsidize other investors.

Alternatively, to increase domestic savings, governments in Canada could increase consumption taxes (e.g. sales taxes) while reducing or even eliminating capital gains taxes, which reduce the after-tax expected returns to investing in businesses, particularly riskier new and emerging domestic companies. (Although according to the recent federal budget, the Trudeau government plans to increase capital gains taxes.)

Or governments could reduce the regulatory burden on private-sector businesses, especially small and medium-sized enterprises, so financial capital and other inputs used to comply with often duplicative or excessive regulation can be used to invest in productivity-enhancing assets. And governments could eliminate restrictions on foreign investment in large parts of the Canadian economy including telecommunications, banking and transportation. By increasing competition, governments can improve productivity.

Eliminating such restrictions would also arguably increase the supply of foreign financial capital flowing into Canada to the extent that large foreign investors would prefer to manage their Canadian assets rather than take portfolio investment positions in Canadian-owned companies.

Canadians would undoubtedly benefit from increases in housing construction (and subsequently, increased affordability) and improved productivity from increased business investment. However, government subsidies to home builders, including the billions recently announced by the Trudeau government, simply move available domestic savings from one set of investments to another. The policy goal should be to increase the availability of risk-taking financial capital so the costs of capital decrease for Canadian investors.

Business

Dark clouds loom over Canada’s economy in 2026

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From the Fraser Institute

By Jock Finlayson

The dawn of a new year is an opportune time to ponder the recent performance of Canada’s $3.4 trillion economy. And the overall picture is not exactly cheerful.

Since the start of 2025, our principal trading partner has been ruled by a president who seems determined to unravel the post-war global economic and security order that provided a stable and reassuring backdrop for smaller countries such as Canada. Whether the Canada-U.S.-Mexico trade agreement (that President Trump himself pushed for) will even survive is unclear, underscoring the uncertainty that continues to weigh on business investment in Canada.

At the same time, Europe—representing one-fifth of the global economy—remains sluggish, thanks to Russia’s relentless war of choice against Ukraine, high energy costs across much of the region, and the bloc’s waning competitiveness. The huge Chinese economy has also lost a step. None of this is good for Canada.

Yet despite a difficult external environment, Canada’s economy has been surprisingly resilient. Gross domestic product (GDP) is projected to grow by 1.7 per cent (after inflation) this year. The main reason is continued gains in consumer spending, which accounts for more than three-fifths of all economic activity. After stripping out inflation, money spent by Canadians on goods and services is set to climb by 2.2 per cent in 2025, matching last year’s pace. Solid consumer spending has helped offset the impact of dwindling exports, sluggish business investment and—since 2023—lacklustre housing markets.

Another reason why we have avoided a sharper economic downturn is that the Trump administration has, so far, exempted most of Canada’s southbound exports from the president’s tariff barrage. This has partially cushioned the decline in Canada’s exports—particularly outside of the steel, aluminum, lumber and auto sectors, where steep U.S. tariffs are in effect. While exports will be lower in 2025 than the year before, the fall is less dramatic than analysts expected 6 to 8 months ago.

Although Canada’s economy grew in 2025, the job market lost steam. Employment growth has softened and the unemployment rate has ticked higher—it’s on track to average almost 7 per cent this year, up from 5.4 per cent two years ago. Unemployment among young people has skyrocketed. With the economy showing little momentum, employment growth will remain muted next year.

Unfortunately, there’s nothing positive to report on the investment front. Adjusted for inflation, private-sector capital spending has been on a downward trajectory for the last decade—a long-term trend that can’t be explained by Trump’s tariffs. Canada has underperformed both the United States and several other advanced economies in the amount of investment per employee. The investment gap with the U.S. has widened steadily since 2014. This means Canadian workers have fewer and less up-to-date tools, equipment and technology to help them produce goods and services compared to their counterparts in the U.S. (and many other countries). As a result, productivity growth in Canada has been lackluster, narrowing the scope for wage increases.

Preliminary data indicate that both overall non-residential investment and business capital spending on machinery, equipment and advanced technology products will be down again in 2025. Getting clarity on the future of the Canada-U.S. trade relationship will be key to improving the business environment for private-sector investment. Tax and regulatory policy changes that make Canada a more attractive choice for companies looking to invest and grow are also necessary. This is where government policymakers should direct their attention in 2026.

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Business

Land use will be British Columbia’s biggest issue in 2026

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By Resource Works

Tariffs may fade. The collision between reconciliation, property rights, and investment will not.

British Columbia will talk about Donald Trump’s tariffs in 2026, and it will keep grinding through affordability. But the issue that will decide whether the province can build, invest, and govern is land use.

The warning signs were there in 2024. Land based industries still generate 12 per cent of B.C.’s GDP, and the province controls more than 90 per cent of the land base, and land policy was already being remade through opaque processes, including government to government tables. When rules for access to land feel unsettled, money flows slow into a trickle.

The Cowichan ruling sends shockwaves

In August 2025, the Cowichan ruling turned that unease into a live wire. The court recognized the Cowichan’s Aboriginal title over roughly 800 acres within Richmond, including lands held by governments and unnamed third parties. It found that grants of fee simple and other interests unjustifiably infringed that title, and declared certain Canada and Richmond titles and interests “defective and invalid,” with those invalidity declarations suspended for 18 months to give governments time to make arrangements.

The reaction has been split. Supporters see a reminder that constitutional rights do not evaporate because land changed hands. Critics see a precedent that leaves private owners exposed, especially because unnamed owners in the claim area were not parties to the case and did not receive formal notice. Even the idea of “coexistence” has become contentious, because both Aboriginal title and fee simple convey exclusive rights to decide land use and capture benefits.

Market chill sets in

McLTAikins translated the risk into advice that landowners and lenders can act on: registered ownership is not immune from constitutional scrutiny, and the land title system cannot cure a constitutional defect where Aboriginal title is established. Their explanation of fee simple reads less like theory than a due diligence checklist that now reaches beyond the registry.

By December, the market was answering. National Post columnist Adam Pankratz reported that an industrial landowner within the Cowichan title area lost a lender and a prospective tenant after a $35 million construction loan was pulled. He also described a separate Richmond hotel deal where a buyer withdrew after citing precedent risk, even though the hotel was not within the declared title lands. His case that uncertainty is already changing behaviour is laid out in Montrose.

Caroline Elliott captured how quickly court language moved into daily life after a City Richmond letter warned some owners that their title might be compromised. Whatever one thinks of that wording, it pushed land law out of the courtroom and into the mortgage conversation.

Mining and exploration stall

The same fault line runs through the critical minerals push. A new mineral claims regime now requires consultation before claims are approved, and critics argue it slows early stage exploration and forces prospectors to reveal targets before they can secure rights. Pankratz made that critique earlier, in his argument about mineral staking.

Resource Works, summarising AME feedback on Mineral Tenure Act modernisation, reported that 69.5 per cent of respondents lacked confidence in proposed changes, and that more than three quarters reported increased uncertainty about doing business in B.C. The theme is not anti consultation. It is that process, capacity, and timelines decide whether consultation produces partnership or paralysis.

Layered on top is the widening fight over UNDRIP implementation and DRIPA. Geoffrey Moyse, KC, called for repeal in a Northern Beat essay on DRIPA, arguing that Section 35 already provides the constitutional framework and that trying to operationalise UNDRIP invites litigation and uncertainty.

Tariffs and housing will still dominate headlines. But they are downstream of land. Until B.C. offers a stable bargain over who can do what, where, and on what foundation, every other promise will be hostage to the same uncertainty. For a province still built on land based wealth, Resource Works argues in its institutional history that the resource economy cannot be separated from land rules. In 2026, that is the main stage.

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