Recent figures have underscored Canada’s slipping productivity, with a number of explanations offered by observers. Perhaps the most significant factor has, curiously, not been discussed at any length: immigration.
Canadian government policies have resulted in an enormous increase in the number of immigrants to Canada, now in the range of nearly 500,000 annually (Canada’s population is just over 40 million). It takes time to integrate people from other places into an economy and to maximize productive potential, so quite naturally the overall Canadian productivity figure has been falling as immigration has mushroomed.
In a report issued yesterday (April 8, 2024), Royal Bank of Canada’s economics department underscores affordability and supply risks in Canada’s housing sector, pointing out that 320,000 new housing units annually are needed from now until 2030 simply to meet new demand, representing a nearly 50% increase from current new housing construction levels.
How can investors benefit from these developments? One way is to acquire forest products sector equities, whose businesses are also likely to benefit from anticipated interest rate declines in the upcoming year. We like Goodfellow Inc. (GDL.TO), recently acquired at $15.25, a Canadian company in business since 1898 engaged in the wholesale distribution of building materials, and floor coverings in Canada, the United States, and internationally. It is also involved in the remanufacturing and distribution of lumber and wood products, with a current dividend yield of 6.557%.
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The tabling of Canada’s new Federal budget on April 16, 2024 has underscored just what a priority housing is for government, with $8.5 billion in new spending designated for housing. In Canada’s Housing Plan, government has pledged to “unlock” 3.87 million homes by 2031, at least two million of them expected to be net new homes, more than half of which government expects to contribute to by way of development and redevelopment of Crown properties as well as a $15 billion pledge to boost the Apartment Construction Loan Program. Of course, all of this comes with a steep price, meaning additional taxation (including a jump in the taxable portion of capital gains for businesses (on the annual portion over $250,000 for individuals) from 1/2 to 2/3) and expanded deficit spending.
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