Canadian Trade Update and More on the Housing Crisis

In this post, I go over the recent trade issues but switch to focus on housing in the second half.

It appears that Canada is still trying to consolidate trade with the Trump administration. Some trade has begun to move abroad, which is an obviously good move. Though it is still frustrating to watch our politicians engage (albeit necessarily) with a regime that just doesn't seem to take these issues seriously.

People have a lot of misconceptions about trade and the economy. International trade is somewhat complicated, with comparative advantages governing selection in the free market. Sometimes people ask me why we (Canadians) even engage with them anymore or why we aren't diversified away from the US. Well, basically, its cheaper and we weren't expecting to have this problem since at least WW2.

Anyways, Canada thinks it going to consolidate a trade deal with the US[1]. I don't think that's going to happen yet. Nothing about the negotiations thus far has been in good faith, we'll probably see another agreement come to the fold then met with resistance in another area (as what happened with the aluminum and steel tariffs). Unless, of course, the US was planning on just giving up- given the resistance they've faced and the impact on Tesla. However, the EU will be pausing retaliatory tariffs for negotiations for 90 days. I would expect trade deals to close sometime after as the US pushes to obtain better deals from Canada (if they have any goal at all) while the pressure is down.

Now, what about the Canadian housing crisis?

First, to clarify, the housing issue is mostly a result of supply side effects (result of restrictions, long approvals, NIMBYism, etc) and foreign investment (purchases / demand, drive prices up)- everything else appears to be more or less noise. For example, take immigration--- go look at housing prices vs migrant populations, you can find that information on Stats Canada, and I promise, you won't see any correlation over the last 4 years. Its also not money-printing, Canada's M2 (money supply, the one you want to use for structural or lasting changes, by the way) likely went up due to money printing as a result of loans, resulting from home purchases (loans make new money- fundamental finance).

Second, political actions succumb to multiple lags, including the time for effects to be recognized and reflected in the markets. This makes fiscal policies unsuitable for short term change. Even if it was suitable for short term adjustments, political cycles incentivize short-termism, whereas solutions to structural issues will probably take longer to resolve.

Third, lowering housing prices impacts investment value. This has effects on 1. homeowners' wealth and 2. institutional wealth. In the first case, although some people will not be sympathetic to their plight, real people would have lower household wealth- and obviously, the current political regime would lose their favor. In the second, institutions would lose wealth and would likely reduce headcounts in exchange, especially if real estate is a big portion of their investment portfolios.

While CBC is correct that social housing would probably alleviate the issue of pricing[2], there's been a number of barriers erected that make it unlikely to have a large effect. Additionally, if you read the Conservative or Liberal agenda entering 2025, both parties were already planning on an undisclosed (probably unknown, frankly) expansion in public housing units.

The most realistic outlook is, unfortunately for many Canadians, probably slower growth with optimism that real income will catch up over a long period- as opposed to an actual decrease in prices.

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References

[1] CBC News. (2025, June). Canada’s ambassador hopeful as U.S.–Canada trade‑and‑security deal negotiations advance. CBC News. Retrieved from https://www.cbc.ca/news/politics/canada-ambassador-deal-u-s-1.7568192

[2] CBC News. (2025, June). What European housing models could do for Canada’s affordability problems. CBC News. Retrieved from https://www.cbc.ca/news/world/europe-social-housing-models-1.7565611