Aled ab Iorwerth
Deputy Chief Economist
As Deputy Chief Economist, Aled ab Iorwerth is part of a team of housing economists and researchers striving to improve Canada’s understanding of drivers and barriers in housing markets and how they impact affordability. Aled is also part of a diverse national team of researchers and analysts who are investigating impediments to housing supply and potential solutions.
With the highest level of debt among G7 countries, three quarters are mortgages
Economies around the world have had some rough years recently. From a global pandemic, a bout of inflation, a disruption in supply chains, coping with a European war and ongoing concern about global financial stability. The Canadian economy has weathered these storms as well, if not better than other economies.
Unfortunately, Canada’s very high levels of household debt — and the highest in the G7 — makes the economy vulnerable to any global economic crisis.
It's important to understand that not all debt is bad. It can be a valuable tool that allows households to purchase more costly items, such as cars and houses. It also enables people to carry things over if they have a temporary drop in income. The financial system has all sorts of products that make it easier for households to purchase items involving large-scale expenditures by distributing payments over time.
Debt, however, comes with significant risks. The burden of servicing debt does not go away when people lose their jobs; the burden continues until the debt is paid off. This is a key problem when there are widespread job losses in the economy because of the global economic downturn and because of people’s inability to pay off their debts when they have no income. And when many households in an economy are heavily indebted, the situation can quickly deteriorate, such as what was witnessed in the U.S. in 2007 and 2008.
Canada’s increasing household debt burdens households with high interest rates
Household debt in Canada has been rising inexorably. At the time of the recession in 2008, it stood at about 80% of the size of the economy, in 2010 it rose to 95%, and by 2021 debt exceeded its size.
By contrast, household debt in the U.S. fell from 100% of GDP in 2008 to about 75% in 2021. While U.S. households reduced debt, Canadians increased theirs and this will likely continue to increase unless we address affordability in the housing market.
The chart below shows these figures, and how debt burdens have increased for countries on the right of the chart while decreasing for countries on the left. Australia, New Zealand and Canada have seen household debt increase from already high levels.