Canada wants 1.5 million immigrants by 2025. That influx will increase home prices and lower affordability unless the country moves swiftly to build much-needed accommodation, according to economists at Desjardins Group.
Randall Bartlett and Marc Desormeaux said in a report released Feb. 13 that Canada must immediately boost housing starts by almost 50 per cent to keep fundamental demand for housing from racing ahead of supply. They aren’t confident that will happen.
“Using history as a guide, the supply response is likely to be insufficient to prevent an increase in prices and an erosion of affordability,” wrote Bartlett and Desormeaux.
The Liberal government of Justin Trudeau is planning a big increase in immigration targets over three years: 465,000 permanent residents in 2023; 485,000 in 2024; and 500,000 in 2025. One of the reasons is to help tackle historic levels of job vacancies.
But some critics say Trudeau appears to have given too little consideration to the impact all those new households will have on property markets. The Desjardins authors noted that leaving immigration at 2018-2021 levels would have a “much more pronounced impact on keeping home prices lower and minimizing the erosion in affordability.”
Victor Dodig, chief executive of the Canadian Imperial Bank of Commerce, told an audience at the Canadian Club Toronto on Feb. 14 that the influx of immigrants will set off the “largest social crisis” over the next decade if something isn’t done to correct the housing shortage.
The Desjardins economists estimate that nationally housing starts will need to increase by an average of 100,000 units from their base case of 210,00 this year on an annualized basis and a base case of 215,000 in 2024. That rate of construction would set a record for the fastest pace of housing starts in Canadian history, they said.
However, the Desjardins economists said Ontario Premier Doug Ford’s “ambitious” plan to encourage the construction of 1.5 million homes would help alleviate the problem.
Canada Mortgage and Housing Corp. released data on Feb. 15 that showed housing starts were headed in the wrong direction, as they fell to their lowest since September 2020 in January, when builders started work on homes at a pace that would yield 215,365 over a year.
Bartlett and Desormeaux argued that housing starts are hitting a “near record pace,” but the surge may have come too late to keep up with the federal government’s immigration targets.
While available housing obviously has an impact on pricing, where new arrivals settle could also play a role.
If immigrants move mostly to British Columbia and Ontario — as they did from 2018 to 2021 — Bartlett and Desormeaux warned that housing prices in Canada’s most expensive regions could become even more so. Instead, if new Canadians were to gravitate to the Prairie provinces, where housing is cheaper, that “would put less pressure on home prices and housing affordability in regions where it is already stretched.” The pair also cited previous research they did indicating that the Prairie provinces have typically done a better job of folding immigrants into their economies.
Still, it’s “wrongheaded” to place all the blame for Canada’s housing woes on rising immigration, the duo argue, laying some portion of the responsibility at the door of policy failures, worker and economic bottlenecks, and investment oversights.
They also cited significant labour shortages in the construction industry and stalling investment in infrastructure and public transit.
“While the surge in newcomers is likely to push home prices higher and erode affordability again, it is important that we recognize that this is not inevitable,” Bartlett and Desormeaux wrote. “Rather than being considered a reason to curb immigration, it should instead be a catalyst for reducing barriers to building more housing. The contribution of immigrants to the Canadian economy well outweighs their impact on the housing market.”