A storm is brewing in Canada’s economy, and its most vulnerable demographic—young adults—are already feeling the effects. BMO Capital Markets has issued a stark warning about a concerning trend: young Canadians are caught in a double bind of skyrocketing unemployment and a housing market that remains out of reach. Though the broader population may not yet feel the full brunt of this economic shift, the situation bears an unsettling resemblance to the country’s worst recessions.
Rapid Rise in Youth Unemployment
In recent months, Canada has experienced a swift shift from a labor shortage to a rising unemployment crisis. The youth unemployment rate, which tracks Canadians aged 15 to 24, surged to 14.5% in August 2024. This is the highest level seen in over a decade, excluding the pandemic. The rapid increase is particularly troubling for this group, as it is now 2.7 times the unemployment rate of core-aged workers (25 to 54 years old), one of the largest gaps on record.
BMO’s chief economist, Douglas Porter, notes the abruptness of the change. While the youth unemployment rate has been higher in previous economic downturns—such as in the early 1980s, much of the 1990s, and the 2009/10 financial crisis—the speed at which it has climbed is unusual. Just a few months ago, the narrative was one of a labor shortage, making the current reversal all the more jarring. While core-aged workers have yet to be hit hard, the signs suggest they could soon face similar challenges.
Unaffordable Housing Adds to the Strain
The youth unemployment crisis is compounded by Canada’s housing affordability problem. Young adults were already struggling with housing costs before the pandemic, and the situation has since worsened. Housing prices in major cities like Toronto and Vancouver were already out of reach for many, but what was once a regional issue has now spread nationwide. With incomes failing to keep pace with rising costs, many young Canadians find themselves priced out of the market.
Even recent drops in housing prices and interest rates have done little to ease the burden. According to the Bank of Canada’s affordability measure, there was a slight improvement in housing affordability in the second quarter of 2024. However, BMO’s Douglas Porter cautions that the housing market remains “very weak.” He explains that while conditions were slightly worse in the early 1980s and 1990s, the current environment mirrors those recessions in terms of difficulty.
A Dire Combination of Factors
For Canada’s young adults, the combination of a weak job market and unaffordable housing creates an unprecedented challenge. Porter draws parallels between the present situation and the economic struggles of the 1980s and 1990s, when finding both employment and affordable housing was similarly difficult. Back then, the housing market eventually corrected itself, with prices crashing and affordability improving within a few years. For example, Toronto’s real estate market took 22 years to recover to its inflation-adjusted peak from the early 1990s.
However, such a correction is not expected in today’s market. The Bank of Canada’s adoption of unconventional monetary policies, such as quantitative easing, has flooded the market with cheap credit. These measures, aimed at propping up demand and keeping prices high, make a significant crash less likely in the short term. While this may benefit investors, it leaves young Canadians in a precarious position, struggling to afford housing even as job opportunities dwindle.