The federal government is now scrambling to reign in Canada's spiking foreign student numbers - how will this impact the housing market?
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As I've written about previously, the rapid increase in international students in Canada has been a big driver of Canada’s population boom, which has raised concerns about the impact this boom is having on housing and healthcare. There are currently over one million international students in Canada.
In response to these concerns, the federal Liberal government has just announced a cap on the number of international student visas issued in Canada for 2024. The cap of 360,000 is a 35% decrease from 2023 levels, and the cap will be weighted by each province’s population. The provincial weighting will result in a 50% decline in Ontario, which will see the number of new international student visas drop by over 100,000 in 2024 compared to the previous year.
So how will this cap impact the housing market in the Greater Toronto Area and Southern Ontario?
Making Sense of Student Housing
Provincial governments never felt it necessary to consider international students' housing needs when they allowed post-secondary institutions to rapidly increase the number of international students they were admitting.
As a result, the private sector filled the gap as many mom-and-pop investors bought single-family homes and converted them to rooming houses, some illegal, to house international students.
Renting to students has been a profitable business because investors can cram 15 to 20 students in a single home, and their total monthly rent would significantly exceed the rent that could be earned if the home was rented to a single family. It’s worth noting that many of these rooming houses offered very poor and, in some cases, unsafe living conditions for students.
How will the cap on international student admissions impact these investors?
Making Sense of the Cap
The first thing worth noting is that the federal government’s measures should not be interpreted as a cut in the number of international students, but as an attempt to prevent further growth in international student enrollment.
The important number that we need to consider is not the decline in the number of students admitted compared to last year, but the difference between the number of students finishing their studies and the number of new students.
For example, suppose the 50% decline in new international student admissions for Ontario means that Ontario will issue 150,000 new student visas in 2024. If Ontario also sees 150,000 international students finish their studies at the end of this academic year, then there will be no change in the total number of international students. The number of international students ending their studies will equal the number of new students.
The number of international student visas that Canada approves has been increasing each year over the past five years. This means that the number of international students who began their studies 2 to 4 years ago and will be finishing their studies this year will be much smaller than the cohort that began their studies in 2023, the cohort that the federal government is basing their 35% off of.
While I have not seen any accurate estimates of the number of international students finishing their studies in Ontario this year, it is reasonable to assume that the number will be much lower than last year’s intake and closer to Ontario’s new annual international student cap, resulting in very little change in the total number of international students studying in Canada.
That being said, the effects of the cap may not be felt equally across regions in Ontario. Some schools that had an outsized increase in international student admissions recently may see their numbers fall more dramatically. If you own a home or are considering buying one in regions with schools that might see their admissions cut more than others, there are a couple of things worth keeping in mind.
For Investors
Investors who own a single-family home that they are currently renting to international students will want to consider if they can afford to keep the home if they need to rent to a single family rather than students if student demand is softer later this year.
Suppose you can’t make the numbers work and are concerned that the demand for student housing will be much lower next year. In that case, you may want to get ahead of the market by selling your investment property as soon as your existing student tenants finish their studies rather than waiting for Fall 2024.
For Home Buyers
I don't expect to see any material impact on the housing market in the near term. Investors tend to be very optimistic about the market, so we are unlikely to see a surge in new listings this spring/summer caused by investors rushing to sell their properties.
However, if the cap on international students dramatically cools the demand for student rentals in certain areas, we may see some investors try to sell their properties this fall if they can’t afford to hold their property with the lower rents earned from a single tenant.
Whether this impacts home prices would depend on the volume of new listings coming on the market and any change in the demand for housing in the fall. Even if listings do increase in some areas, if interest rates are lower in the fall, the increase in demand caused by lower rates may help the market absorb the increase in new listings.
We’ll better understand how the market is adjusting to the international student cap in the second half of this year.
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).
January 30, 2024
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