Could big Trump tariffs slow London-area housing demand?

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Industry watchers appear divided over the potential impact on London’s housing market of possible tariffs on Canadian exports to the U.S., especially if they lead to Volkswagen pulling the plug on its St. Thomas battery plant.

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U.S. president-elect Donald Trump is warning he will impose punishing new taxes on all Canadian and Mexican imports the day he’s sworn into office in January, unless both countries move swiftly to stem the flow of illegal migrants and drugs into the United States.

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Though some observers have downplayed the likelihood Trump will follow through with his threat, and cause Volkswagen to relocate its electric vehicle battery plant from St. Thomas to a U.S. site, the impact of such a move would be felt through the entire London region.

“The Volkswagen battery plant is expected to create thousands of both direct and indirect jobs. So, obviously, if Volkswagen were to pull the plug on such a project, it could have impacts not only on manufacturing, but in other sectors as well, and kind of trickle down throughout the local economy,” said David Ristovski, an economist with Conference Board of Canada.

Since its announcement, the battery plant has been seen as a transformational project for the economic future of the region, including in London, that would generate thousands of jobs and attract thousands of people to the area.

At the same time, those workers are expected to add to the high demand for housing in the London area, already one of the fastest-growing metropolitan areas in Canada and one expected to grow by more than 50 per cent during the next 25 years.

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Though the economic effect of the plant not being built would be significant – the board estimates the tariffs alone could result in Canada’s gross domestic product dropping by as much as two per cent – Ristovski said the project represents only a fraction of the expected future demand for homes in the region.

“If such a project were to come to a halt, it could impact demand a little bit, but it wouldn’t completely deplete it,” he said.

“That’s because the Volkswagen plant is in the mix of how we think about demand for homes. It is somewhere in that mix, but it’s not the main driver. What’s really driving the demand for homes is newcomers coming to the city and investment from the federal government to help build homes over the next few years.”

Regardless of the number of people who would not come to the region if the plant isn’t built, demand would be affected more by the economic pain the tariffs would create on family finances, said Diana Mok, an associate professor of real estate at the University of Guelph.

She said a trade war between Canada and the U.S. would inevitably result in higher prices for basic commodities, such as food and gasoline. That on its own – as higher interest rates and inflation did during the past two years – could impact people’s ability to buy or rent a home.

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“The focus is not just on supply or demand for housing. It’s about household finances,” she said. “There are always people wanting to buy houses or renting and forming households . . . but we’re talking about bread becoming more expensive.

“So, how would households refocus themselves, whether they want to buy or rent a smaller place instead of a bigger place?”

Though Mok could see demand dropping as a result of higher tariffs, she said it won’t necessarily translate immediately into a drop in prices because the cost of building new homes would also rise.

“On the one hand, we might see demand scaling back, not in a pleasant way, because we have to adjust our household finances, but at the same time, we are also seeing the cost of construction also going up at the other end,” she said.

“So, prices would still go up against, potentially, lower demand.”

jjuha@postmedia.com

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