A major new announcement on a change to Canada's immigration targets will have a bigger impact on our housing affordability crisis than it may first appear.
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Last week, Canada’s immigration minister, Marc Miller, announced that the Liberal federal government plans to reduce the number of non-permanent residents (NPR) in Canada from the current 6.2% share of total population to 5% over the next three years.
Ten years ago, NPRs made up roughly 2% of Canada’s population, and since then, the surge in NPRs has contributed to Canada’s rapid population growth.
On the surface, this reduction doesn’t sound like a noteworthy announcement that will have much of an impact, but a closer look at the data makes it clear that this is a significant shift in policy and one that will have wide-reaching effects, particularly on the housing market.
The number of NPRs in Canada in the fourth quarter of 2022 was roughly 1.7 million (M), which increased to just over 2.5M a year later, an 800,000 (800K) increase. For the federal government to reduce the portion of NPRs to 5% of the population, the number of NPRs in Canada would have to decline by around 450K people over the next three years.
While this change may not have a drastic effect on the number of NPRs in Canada immediately, it will have a significant effect on how quickly Canada’s population grows each year. Over the next three years, while roughly 450K people will arrive in Canada due to net immigration of permanent residents, a corresponding decline of roughly 150K non-permanent residents will result in Canada’s population growing by roughly 300K people each year. This means that Canada’s population, which grew by 1.2M in a single year last quarter, may grow by only 300K per year 12 months from now.
This graph outlines Canada’s population growth each year and the projected growth if the Liberals achieve their target.
This dramatic change in managing Canada’s population growth is a significant change in approach by Liberal federal government, one that is a game-changer for our housing affordability crisis.
For years, the Liberals have argued that Canada’s housing crisis is due to a lack of supply and that the only solution is to build more homes, the same argument many industry experts have been making for years. By insisting on supply-side only solutions, and ignoring any calls to better manage demand for housing (which includes increased demand from rapid population growth), the government and many experts have been suggesting that Canada could restore affordability by tripling the number homes built over the next ten years, a massive increase in supply from the current average of just over 200K homes built yearly since the 1990s.
Bank of Montreal economists Doug Porter and Robert Kavcic were among the few economists to disagree, rightly arguing that ramping up housing supply takes a very long time, due to need to increase available labour, amongst other challenges, and that to address housing affordability in the short term, policymakers need to look at better managing the demand for housing.
In a recent interview, Kavcic had this to say about the federal government’s change to NPR target numbers:
“This is attacking the demand curve now, which is a complete change in philosophy for policy makers, and one that we think is actually going to work.”
Kavcic is correct; assuming these targets are reached, this approach is actually going to work — but it’s important to note that this doesn’t mean that houses will suddenly be more affordable in the near-term.
By reducing Canada’s annual population growth rate, the federal government is achieving several important goals.
Canada’s previous approach to the housing crisis, which focused only on trying to increase supply while our population continued to grow far more rapidly ensured that our housing shortage and affordability crisis would only get worse each year.
Reducing Canada’s population growth to roughly 300K people per year will take some pressure off home price appreciation in the years to come. Canada will still have a housing shortage, but the shortage will not be getting worse each year, and, in fact, housing completions are likely to outpace population growth which means Canada will be gradually reducing its overall shortage.
This is not an immediate solution to our housing affordability crisis, but is a correct and necessary first step.
I also believe that this change in approach will resonate far more with all who are increasingly concerned about housing affordability, particularly as supply targets continued to be missed as our population reached a record high growth over the past few years.
I hope you found today's post helpful. If you have any questions, please email me at askjohn@movesmartly.com.
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John Pasalis is President of Realosophy Realty. A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).
