Beyond higher interest rates and
inflation, wars cause jobs to dry up, slow construction, and increase
unemployment.
By Fareed Khan
A version of this can be found on Substack.
Canada’s real estate sector stands out as one of the largest parts of the national economy, accounting for roughly 13.2% of GDP – the biggest single slice of the national economic pie. This covers the value of people living in their own homes, rental properties, commercial leasing and the work of real estate agents and brokers. It also accounts for jobs in construction, banking and related services, which fuels much of the consumer spending that keeps the economy moving. When this sector takes a hit, the pain spreads quickly, touching everything from the more than one million mortgage renewals due in 2026, to plans for the construction of new homes and condos across the country.
The way these economic shocks reach Canada's shores is straightforward—and it plays out the same way with every major global conflict. Wars in the Middle East hit particularly hard because the region produces a substantial share of the world's oil supply; under normal conditions, countries there (including key Gulf producers) account for roughly 30 per cent of global output, and critical routes like the Strait of Hormuz carry about one-fifth of seaborne crude trade.
When fighting disrupts production, threatens tankers or blocks key shipping lanes—as has happened dramatically since the current conflict escalated—oil prices surge quickly. That higher cost flows straight into everyday expenses—gasoline at the pump gets pricier, home heating bills climb, and even the price of fruits and vegetables rises because so much modern farming relies on oil-based fertilizers and fuel for transport. Even though Canada is a net exporter of oil and produces more than it consumes domestically, the country isn't shielded from these international swings. When global oil prices jump, the cost of living rises for everyone, no matter where they live, pushing up inflation and pressuring central banks to respond.
To stop prices from spiralling out of control, the Bank of Canada holds off on cutting interest rates or raises them if needed, thus making mortgages more expensive, especially the variable-rate ones many households carry. According to the International Monetary Fund Canadians already carry some of the heaviest household debt in the world relative to their income, consistently ranking at or near the top among developed nations. As of the fourth quarter of 2025, Canadians held approximately $1.77 in credit market debt for every dollar of disposable income, according to Statistics Canada data released in March 2026.
In the current market, with housing affordability already a major problem, and households struggling under these heavy debt burdens, even modest rate increases make buying a home feel out of reach for many. In such a scenario, many owners would likely decide to stay put rather than sell and take on a costlier new mortgage, while first-time buyers find entering the market even more difficult.
This pressure has been building for years. Since 2021, consumer insolvencies—including bankruptcies—have risen annually, with 2025 recording the second-highest annual volume on record since tracking began in 1987, a 16-year high. Consumer bankruptcies specifically increased by 4.3% compared to 2024, driven largely by persistent inflation, higher debt servicing costs from elevated interest rates, and growing debt loads, particularly on credit cards.
These trends leave families more vulnerable when external shocks like rising energy prices from a distant war push borrowing costs higher, turning what might be a temporary squeeze into longer-term financial strain that further cools the real estate market.
Building new homes becomes noticeably more expensive too, because oil plays a central role in producing many construction materials—asphalt for roads and roofing, plastics for pipes and wiring, paints, and insulation—while also raising the price of trucking those supplies across vast distances to building sites. At the same time, when wars disrupt global supply chains and sows widespread uncertainty about the economy, people considering entering the housing market or moving to a bigger home, along with investors eyeing properties, often choose to pause and wait for a more stable situation. That collective hesitation quickly becomes visible in the market as fewer homes sell, activity slows sharply, and house prices flatten or begin to trend downward.
If a conflict ends quickly, things can usually return to normal fairly soon once oil supplies stabilize and interest rates come down. But when the fighting drags on—as appears increasingly likely in the current US-Israel operations against Iran, now in its third week with no immediate end in sight—the elevated costs take root as the new everyday reality. Borrowing remains expensive for an extended period, and the harm to home values grows deeper and more persistent, affecting markets nationwide from high-rise condos in Vancouver and Toronto to single-family houses in Halifax and communities in between.
During the six long years of the Second World War, Canadian factories turned almost entirely to producing weapons, vehicles, and other military supplies, left civilian construction—including new homes—severely limited. With building materials rationed and labour redirected to the war effort, the number of homes added to the market was far below what was needed. As the conflict dragged on, cities swelled with workers drawn to wartime jobs and, later, with returning soldiers eager to start new lives. The result was a sharp housing shortage that left families crammed into overcrowded apartments, shared homes, or whatever shelter they could find.
Because the disruption lasted so many years, the housing market could not begin to recover until well after the fighting ended in 1945. Only then, with the help of government programs such as those run by the newly created Central Mortgage and Housing Corporation, did large-scale home building finally take off and ease the pressure. Even though Canada was never bombed or occupied, the long diversion of resources and attention to the war effort still created a deep and lasting housing crunch for ordinary families across the country.
The 1973 Yom Kippur War and the oil embargo that followed also brought years of rising prices and economic pain to Canada. Fuel costs quadrupled, pushing up the price of almost everything. To fight the surge in living costs, the Bank of Canada pushed rates higher, eventually topping 20% by the early 1980s. Mortgage payments became crushing for many families, sales slowed dramatically and home prices stagnated or fell when measured against inflation. The effects lasted well into the 1980s because the oil shock did not fade quickly, showing how a distant conflict can keep housing under pressure for years even when Canada was not directly involved.
The 1990-1991 Gulf War lasted only months but still helped trigger a recession that weighed on Canadian real estate+ for several years afterward. Oil prices spiked at first, inflation rose and consumer confidence cratered. The Bank of Canada eventually cut rates, but the damage had already been done as sales weakened, new building slowed and average house prices dropped noticeably in many parts of the country. The short duration of the war allowed an eventual rebound, yet it proved that even brief regional wars can create extended drags on the market through higher costs and lost confidence.
The Russia-Ukraine war, now entering its fourth year, offers a recent warning of how drawn-out fighting keeps hurting economies far away. Energy and food prices jumped as a direct result of the Russian incursion into Ukraine, forcing the Bank of Canada to raise interest rates within a week after the invasion began, driven by fears of runaway inflation and soaring commodity prices. Housing sales volumes cooled, affordability worsened and price growth slowed across the country even in strong markets like Toronto and Vancouver. The conflict’s length has prevented a full recovery, leaving higher borrowing costs and uncertainty in place far longer than a quick resolution would have allowed.
The current situation with Iran is already showing early signs of the same pressures. Since the strikes began in late February, oil prices have climbed to more than US$100 per barrel, with gas prices topping $2.00 per litre in British Columbia, approaching $1.70 per litre in Ontario and Quebec, and reaching $1.80 per litre in Atlantic Canada. Bond yields have moved higher because investors worry about lasting inflation, making mortgage rates firmer just as hundreds of thousands of Canadian families face renewals. Economists note that if the conflict stretches on, the Bank of Canada may have to increase rates and keep them elevated longer, delaying the relief many home buyers were counting on for the spring market.
Wars create extra layers of harm beyond higher interest rates. Construction jobs dry up when building slows because of costly materials and hesitant buyers, leaving tradespeople out of work, and more families are forced to sell homes quickly—sometimes at a loss—to cover bills. This extra supply on the market pushes prices down even further in already soft conditions.
Overseas investors who once saw Canadian real estate as a safe place to park money are also likely reassess their investing and with many of them looking at investment opportunities in other countries. With uncertainty rising, capital will flow elsewhere, cutting demand sharply in cities where foreign buyers play a large role in the market—cities like Toronto and Vancouver—and will cause noticeable price drops in certain neighbourhoods. The simple fear of what might happen next will freeze the market in place, as families put off buying their first home or moving up, while sellers who can afford to wait hold off until the market improves. Fewer deals mean that prices will drift lower as the lack of activity itself signals trouble to everyone watching.
Looking back at past conflicts makes the pattern clear. During the early 1990s slowdown linked to the Gulf War, Canadian real estate took a particularly heavy hit, with property values declining sharply in many rmarkets once lending tightened and confidence vanished. The 1973 oil crisis produced similar years of flat or falling prices once inflation was taken into account. These repeated drops show how deeply wars can wound the housing market even in a peaceful country like Canada.
Notable is that the economic damage does not stop when the shooting ends. It often takes years for confidence to return fully, for rates to settle and for large numbers of buyers to feel secure enough to jump back in. During that slow recovery period, many families watch their biggest asset—their home—lose ground or fail to grow, eating into retirement equity and overall wealth that most Canadians count on. This long-lasting drag is why experts stress that extended wars are especially dangerous for the housing sector.
Real estate’s large role in the Canadian economy makes these blows land harder. It not only drives a big share of GDP but also supports hundreds of thousands of jobs, and lets families tap into home equity for everything from children's education to daily spending. When wars disrupt that foundation through higher interest rates, increased costs, fewer sales and lower values, the effects reach far beyond individual homeowners to slow growth across the national economy.
Taken together, history and the present situation prove the point clearly. Regional wars send shocks through energy prices and interest rates that reach Canada regardless of any direct involvement. Short conflicts may cause only brief dips, but longer ones—like the multi-year oil crises of the 1970s, the lingering effects of the Gulf War recession or Ukraine’s ongoing drag—embed higher costs, greater uncertainty, and sustained pressure on real estate prices.
The new Iran conflict, with its potential to push oil prices to new record highs, and keep inflation elevated, risks repeating the worst of those patterns if it continues. Mortgage payments could stay at painful levels, new construction could remain stalled, and buyer confidence could remain shaky, leading to clear declines in real estate values nationwide. The longer such wars go on, the more severely Canadian real estate and housing values suffer—a reminder of how connected even a peaceful country’s biggest asset class is to distant conflicts.
© 2024 The View From Here. © 2024 Fareed Khan. All Rights Reserved.
Regional wars
that break out far from Canada can still send strong ripples through the
economy and impact every sector in the economy, particularly real estate and
housing. The current war on Iran instigated by the United States and Israel,
which started on February 28, shows exactly how this happens. Rising oil
prices, higher everyday living costs and the Bank of Canada keeping interest
rates elevated all make it tougher for average families to buy homes, slow down
sales and push house prices lower. The longer these conflicts last, the more
damage they do.
Canada’s real estate sector stands out as one of the largest parts of the national economy, accounting for roughly 13.2% of GDP – the biggest single slice of the national economic pie. This covers the value of people living in their own homes, rental properties, commercial leasing and the work of real estate agents and brokers. It also accounts for jobs in construction, banking and related services, which fuels much of the consumer spending that keeps the economy moving. When this sector takes a hit, the pain spreads quickly, touching everything from the more than one million mortgage renewals due in 2026, to plans for the construction of new homes and condos across the country.
The way these economic shocks reach Canada's shores is straightforward—and it plays out the same way with every major global conflict. Wars in the Middle East hit particularly hard because the region produces a substantial share of the world's oil supply; under normal conditions, countries there (including key Gulf producers) account for roughly 30 per cent of global output, and critical routes like the Strait of Hormuz carry about one-fifth of seaborne crude trade.
When fighting disrupts production, threatens tankers or blocks key shipping lanes—as has happened dramatically since the current conflict escalated—oil prices surge quickly. That higher cost flows straight into everyday expenses—gasoline at the pump gets pricier, home heating bills climb, and even the price of fruits and vegetables rises because so much modern farming relies on oil-based fertilizers and fuel for transport. Even though Canada is a net exporter of oil and produces more than it consumes domestically, the country isn't shielded from these international swings. When global oil prices jump, the cost of living rises for everyone, no matter where they live, pushing up inflation and pressuring central banks to respond.
To stop prices from spiralling out of control, the Bank of Canada holds off on cutting interest rates or raises them if needed, thus making mortgages more expensive, especially the variable-rate ones many households carry. According to the International Monetary Fund Canadians already carry some of the heaviest household debt in the world relative to their income, consistently ranking at or near the top among developed nations. As of the fourth quarter of 2025, Canadians held approximately $1.77 in credit market debt for every dollar of disposable income, according to Statistics Canada data released in March 2026.
In the current market, with housing affordability already a major problem, and households struggling under these heavy debt burdens, even modest rate increases make buying a home feel out of reach for many. In such a scenario, many owners would likely decide to stay put rather than sell and take on a costlier new mortgage, while first-time buyers find entering the market even more difficult.
This pressure has been building for years. Since 2021, consumer insolvencies—including bankruptcies—have risen annually, with 2025 recording the second-highest annual volume on record since tracking began in 1987, a 16-year high. Consumer bankruptcies specifically increased by 4.3% compared to 2024, driven largely by persistent inflation, higher debt servicing costs from elevated interest rates, and growing debt loads, particularly on credit cards.
These trends leave families more vulnerable when external shocks like rising energy prices from a distant war push borrowing costs higher, turning what might be a temporary squeeze into longer-term financial strain that further cools the real estate market.
Building new homes becomes noticeably more expensive too, because oil plays a central role in producing many construction materials—asphalt for roads and roofing, plastics for pipes and wiring, paints, and insulation—while also raising the price of trucking those supplies across vast distances to building sites. At the same time, when wars disrupt global supply chains and sows widespread uncertainty about the economy, people considering entering the housing market or moving to a bigger home, along with investors eyeing properties, often choose to pause and wait for a more stable situation. That collective hesitation quickly becomes visible in the market as fewer homes sell, activity slows sharply, and house prices flatten or begin to trend downward.
If a conflict ends quickly, things can usually return to normal fairly soon once oil supplies stabilize and interest rates come down. But when the fighting drags on—as appears increasingly likely in the current US-Israel operations against Iran, now in its third week with no immediate end in sight—the elevated costs take root as the new everyday reality. Borrowing remains expensive for an extended period, and the harm to home values grows deeper and more persistent, affecting markets nationwide from high-rise condos in Vancouver and Toronto to single-family houses in Halifax and communities in between.
During the six long years of the Second World War, Canadian factories turned almost entirely to producing weapons, vehicles, and other military supplies, left civilian construction—including new homes—severely limited. With building materials rationed and labour redirected to the war effort, the number of homes added to the market was far below what was needed. As the conflict dragged on, cities swelled with workers drawn to wartime jobs and, later, with returning soldiers eager to start new lives. The result was a sharp housing shortage that left families crammed into overcrowded apartments, shared homes, or whatever shelter they could find.
Because the disruption lasted so many years, the housing market could not begin to recover until well after the fighting ended in 1945. Only then, with the help of government programs such as those run by the newly created Central Mortgage and Housing Corporation, did large-scale home building finally take off and ease the pressure. Even though Canada was never bombed or occupied, the long diversion of resources and attention to the war effort still created a deep and lasting housing crunch for ordinary families across the country.
The 1973 Yom Kippur War and the oil embargo that followed also brought years of rising prices and economic pain to Canada. Fuel costs quadrupled, pushing up the price of almost everything. To fight the surge in living costs, the Bank of Canada pushed rates higher, eventually topping 20% by the early 1980s. Mortgage payments became crushing for many families, sales slowed dramatically and home prices stagnated or fell when measured against inflation. The effects lasted well into the 1980s because the oil shock did not fade quickly, showing how a distant conflict can keep housing under pressure for years even when Canada was not directly involved.
The 1990-1991 Gulf War lasted only months but still helped trigger a recession that weighed on Canadian real estate+ for several years afterward. Oil prices spiked at first, inflation rose and consumer confidence cratered. The Bank of Canada eventually cut rates, but the damage had already been done as sales weakened, new building slowed and average house prices dropped noticeably in many parts of the country. The short duration of the war allowed an eventual rebound, yet it proved that even brief regional wars can create extended drags on the market through higher costs and lost confidence.
The Russia-Ukraine war, now entering its fourth year, offers a recent warning of how drawn-out fighting keeps hurting economies far away. Energy and food prices jumped as a direct result of the Russian incursion into Ukraine, forcing the Bank of Canada to raise interest rates within a week after the invasion began, driven by fears of runaway inflation and soaring commodity prices. Housing sales volumes cooled, affordability worsened and price growth slowed across the country even in strong markets like Toronto and Vancouver. The conflict’s length has prevented a full recovery, leaving higher borrowing costs and uncertainty in place far longer than a quick resolution would have allowed.
The current situation with Iran is already showing early signs of the same pressures. Since the strikes began in late February, oil prices have climbed to more than US$100 per barrel, with gas prices topping $2.00 per litre in British Columbia, approaching $1.70 per litre in Ontario and Quebec, and reaching $1.80 per litre in Atlantic Canada. Bond yields have moved higher because investors worry about lasting inflation, making mortgage rates firmer just as hundreds of thousands of Canadian families face renewals. Economists note that if the conflict stretches on, the Bank of Canada may have to increase rates and keep them elevated longer, delaying the relief many home buyers were counting on for the spring market.
Wars create extra layers of harm beyond higher interest rates. Construction jobs dry up when building slows because of costly materials and hesitant buyers, leaving tradespeople out of work, and more families are forced to sell homes quickly—sometimes at a loss—to cover bills. This extra supply on the market pushes prices down even further in already soft conditions.
Overseas investors who once saw Canadian real estate as a safe place to park money are also likely reassess their investing and with many of them looking at investment opportunities in other countries. With uncertainty rising, capital will flow elsewhere, cutting demand sharply in cities where foreign buyers play a large role in the market—cities like Toronto and Vancouver—and will cause noticeable price drops in certain neighbourhoods. The simple fear of what might happen next will freeze the market in place, as families put off buying their first home or moving up, while sellers who can afford to wait hold off until the market improves. Fewer deals mean that prices will drift lower as the lack of activity itself signals trouble to everyone watching.
Looking back at past conflicts makes the pattern clear. During the early 1990s slowdown linked to the Gulf War, Canadian real estate took a particularly heavy hit, with property values declining sharply in many rmarkets once lending tightened and confidence vanished. The 1973 oil crisis produced similar years of flat or falling prices once inflation was taken into account. These repeated drops show how deeply wars can wound the housing market even in a peaceful country like Canada.
Notable is that the economic damage does not stop when the shooting ends. It often takes years for confidence to return fully, for rates to settle and for large numbers of buyers to feel secure enough to jump back in. During that slow recovery period, many families watch their biggest asset—their home—lose ground or fail to grow, eating into retirement equity and overall wealth that most Canadians count on. This long-lasting drag is why experts stress that extended wars are especially dangerous for the housing sector.
Real estate’s large role in the Canadian economy makes these blows land harder. It not only drives a big share of GDP but also supports hundreds of thousands of jobs, and lets families tap into home equity for everything from children's education to daily spending. When wars disrupt that foundation through higher interest rates, increased costs, fewer sales and lower values, the effects reach far beyond individual homeowners to slow growth across the national economy.
Taken together, history and the present situation prove the point clearly. Regional wars send shocks through energy prices and interest rates that reach Canada regardless of any direct involvement. Short conflicts may cause only brief dips, but longer ones—like the multi-year oil crises of the 1970s, the lingering effects of the Gulf War recession or Ukraine’s ongoing drag—embed higher costs, greater uncertainty, and sustained pressure on real estate prices.
The new Iran conflict, with its potential to push oil prices to new record highs, and keep inflation elevated, risks repeating the worst of those patterns if it continues. Mortgage payments could stay at painful levels, new construction could remain stalled, and buyer confidence could remain shaky, leading to clear declines in real estate values nationwide. The longer such wars go on, the more severely Canadian real estate and housing values suffer—a reminder of how connected even a peaceful country’s biggest asset class is to distant conflicts.
© 2024 The View From Here. © 2024 Fareed Khan. All Rights Reserved.
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