[LINK] "How Oily Is Canada's Housing Bubble?"

[rfmcdonald]

Bloomberg's Megan McArdle suggested that the bursting of Alberta's oil boom is not likely to lead to a general collapse in the Canadian housing market. I'm skeptical of her assumptions that Alberta's shock won't be transmitted elsewhere in Canada, and not only on account of the dependence of economies and labour markets elsewhere in Canada on Albertan prosperity. You?

If you watch any amount of HGTV -- which is to say, if you are a middle-aged married person -- then you've probably noticed something funny: A lot of the people on shows such as "Property Brothers" seem to have Canadian accents. And you've probably noticed something else a bit funny: Those people are paying a heck of a lot for claustrophobic rowhouses on so-so streets.

Canada is one of the few Western nations that survived the financial crisis nearly unscathed. My working theory has long been that this is because the Canadian banking system is run by Canadians, a very sensible people. But it's reasonable to ask whether Canada's relative stability might not have something to do with the price of oil, because Canada is sitting on a large supply of "nontraditional" (read: "expensive to extract") petroleum, mostly in Alberta. And as David Parkinson, economics reporter at the Globe and Mail, has written, their economic growth has been substantially goosed by those deposits[.]

How much does Alberta matter? Well, as with any good native Albertan (full disclosure – born and raised), my knee-jerk tendency is to say “way more than the rest of you bastards combined.” But in the current Canadian economy, that’s alarmingly close to accurate. Alberta contributed one-third of Canada’s economic growth last year, and is by far the fastest-growing province in the country again this year. Since the beginning of 2013, nearly half the jobs created in the country were in Alberta. . . .

The oil sector has not only been leading the way in Canada’s export recovery, it has also been the big driver in business capital investment in the country. That means the sector has been leading the way in the two key areas that the Bank of Canada has repeatedly identified as critical to sustaining Canada’s recovery. Lower prices could stifle energy’s contribution on both fronts; they are not only an automatic drag on the value of exports, they are also a notorious capital-spending killer.

Canadians have been worrying more and more about a housing bubble. In that context, it's worth examining whether the fall in oil prices will be what finally causes the bubble to burst.