and, in british columbia, these rules were further augmented. and third, mortgage interest rates continued to rise. in mid - 2017, the average five - year fixed mortgage rate was 2. 7 per cent. by the end of last year this rate had moved to around 3. 7 per cent. these factors caused all facets of housing to moderate. as a result, the housing market remains in a state of adjustment and flux, with wide regional differences. it is important to keep in mind that we ’ ve seen many housing markets moderate in countries such as australia and the united kingdom as the level of investor activity declined. the bulk of the slowdown has come from lower resale activity in the greater vancouver and greater toronto areas. in calgary, the volume of home sales is off by 17 per cent from a year ago, likely reflecting the decline in the oil sector. in contrast, over the same period we ’ ve seen a pickup of sales in cities like winnipeg, ottawa and montreal. overall, house prices rose by 4 per cent in 2018, consistent with the pace of national labour income growth. in many major markets we are also seeing shifts in construction from single - family detached homes to condos and other multi - family units, reflecting demand shifts as well as geographic constraints. for example, in the greater toronto area, by the end of 2018, starts of single - family detached houses had fallen by more than half to their lowest level since 1995, while the construction of multiples had increased by about 25 per cent in 2018. we are seeing the same pattern in calgary, montreal and here in hamilton. so, in general, complex adjustments, which do take time, are underway in housing markets, with significant variability across regions. at the bank, we are tracking these changes, given the importance of the housing market to the economy. consumption now let ’ s look at consumption. about 35 per cent of our household spending is relatively stable. that ’ s because the largest portion — roughly 20 per cent — is rent or an equivalent cost if you own your house. both tend to tick up a little every year. spending on other necessities, such as on your water bill or toothpaste, also contributes to the stability of consumption. you tend to pay your bill and brush your teeth regardless of your debt levels and the state of the economy. but some spending is more optional, such as on new cars, travel abroad, recreation and restaurant meals. it is in these categories where

our business outlook survey interviews indicate that while companies plan to invest in new machinery and equipment, few are planning to expand their capacity, at least so far. this helps explain why business investment might be delayed relative to what would be expected in a normal cycle. this research has important implications for canada ’ s employment picture. we know that when companies restructure or close their doors, the associated job losses are usually permanent. if companies can meet increased export demand with existing capacity, the associated employment gains can be fairly modest, with most of the increase in output coming in the form of higher productivity. the bigger employment gains will come when we enter the rebuilding phase of the cycle – when companies are sufficiently confident about future export demand that they begin to invest in new capacity and create new jobs. these considerations enter into our estimation of the output gap – the difference between gdp and potential gdp – which is the key macroeconomic determinant of the outlook for bis central bankers ’ speeches underlying inflation. when the economy moves into a position of excess supply, inflation declines, and when it moves into a position of excess demand, inflation rises. there is no single preferred measure of capacity in the economy. traditionally, we have put the most weight on measures based on output, or gdp. each october, we do a full analysis of the determinants of potential output, and its future trend. we have done so in this mpr, but in future we will update this analysis in every mpr. this time, we also offer a special technical box that considers the dynamics of excess capacity in longer business cycles like this one. the reason this is important is that in such longer business cycles, the restructuring or closure of firms reduces potential output while creating permanent job losses. this means that the output gap can appear smaller than the labour market gap, which is our current situation. this difference persists until after the rebuilding phase of the recovery i discussed earlier, when the excess capacity measures eventually converge. our judgment is that we have considerable excess capacity and that continued monetary stimulus is needed to close the gap and bring inflation sustainably to target. but we take account of our uncertainty around the degree of slack by considering a range of possible slack estimates in our deliberations. another important building block of our policy framework is the neutral rate of interest. the neutral rate is the rate of interest that should emerge once all the dust has settled – inflation is on target, the economy is operating at its full capacity, and all shocks