How Canada’s Immigration Cuts Will Impact Housing

The Liberal Federal Government continues to make a sharp policy turn in greatly reducing Canada's immigration numbers - how will it impact our housing market?

Last month Canada’s federal government announced that they would be reducing their immigration targets from 500,000 to 395,000 in 2025. This follows an announcement earlier this year that they planned to reduce the number of non-permanent residents in Canada from 7% of the population to 5% by 2026.

What impact will these changes in Canada’s immigration policies have on Canada’s housing market?

A much bigger impact than most might think.

Canada’s population is growing by roughly 1.3M people per year and this time next year. If our federal government actually follows through with their plans, our population growth might be zero a year from now - that is, no growth at all.

Even though Canada will be welcoming 395,000 new immigrants next year, the number of non-permanent residents in Canada will be declining by a similar amount resulting in little to no overall growth.

One of the big drivers of Canada’s surging house prices and rents is that for years our population was growing too quickly for the roughly 200K new homes Canada builds each year, a supply number that has largely remained flat for years.

But if Canada’s population growth falls to zero, we will suddenly find ourselves in a situation where housing completions are outpacing the demand for new housing, which should put downward pressure on rents and possibly home prices in the near term.

How is this possible when we have a housing shortage?

Canada’s housing shortage is reflected in today’s prices. What impacts tomorrow’s prices is the relationship between the change in the supply of homes and the change in the new demand for homes.

If our federal government follows through with their proposed immigration plans, Canada will be building more homes than we need to address the new demand for housing, which should reduce our housing shortage and make housing more affordable in the near term.

In addition to making housing more affordable, I expect this change to take away some of the exuberance and obsession Canadians have when it comes to investing in real estate.

It is easy to be a real estate investor when our government decides to triple our population growth, knowing that the housing supply cannot keep up. It’s an investment that is rigged to pay off.

But when our population isn’t growing, and house and rent prices are not appreciating by 10%/yr, real estate might go back to looking like a very boring investment.

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).