Click to Expand

Canada’s housing shortfall could widen by another 500,000 units within just two years if immigration continues at its current pace, according to a recent report from TD Economics.

In the report, economists Beata Caranci, James Orlando and Rishi Sondhi note that Canada’s population grew by 1.2 million over the past year, as of the second quarter of 2023 — more than double the pace of population growth in 2019 and years prior.

And the federal government has set its sights on welcoming another 500,000 people per year by 2025 in hopes of addressing labour shortages and counterbalancing the country’s aging demographic.

But the economists question whether the “sudden swing in population has gone too far, too fast.”

Even before this “sudden influx” of newcomers, the economists say Canada’s future housing stock was forecast to become less affordable across the country.

And if the government’s current high-growth immigration strategy continues, they estimate the country’s housing shortfall could widen by about half a million units in just two years’ time.

“Recent government policies to accelerate construction are unlikely to offer a stopgap in this short time period due to the natural lags that exist in adjusting supply,” the report states.

The National Bank of Canada released a report on Wednesday that echoed those points.

“The federal government’s decision to open the immigration floodgates during the most aggressive monetary tightening cycle in a generation has created a record imbalance between housing supply and demand,” National Bank chief economist Stéfane Marion said in a note to investors.

“As housing affordability pressures continue to mount across the country, we believe Ottawa should consider revising its immigration targets to allow supply to catch up with demand.”

A recent BMO analysis suggests that for every one per cent increase in population, housing prices typically increase by roughly three per cent each year. It points out that in recent years, Canada’s population has been growing at an average annual pace of 1.5 per cent per year — and a whopping 2.7 per cent in 2022 alone — which is consistent over time with five per cent annual home price gains on top of inflation.

HOUSING ISSUES LONGSTANDING, WOULD EXIST REGARDLESS OF THE PACE OF IMMIGRATION: ECONOMIST

Mikal Skuterud, a professor of economics at the University of Waterloo and the director of the Canadian Labour Economics Forum, praised the banks for presenting facts as opposed to taking a more subjective approach to immigration in the reports.

He noted, however, that the issues of housing affordability and limited housing supply would exist regardless of the current pace of immigration in Canada, but immigration is likely a contributing factor.

“On the housing front, there are underlying issues there that are longstanding and/or independent of immigration levels,” Skuterud told CTVNews.ca in an interview.

“For sure, immigration is not helping the issue — it’s probably exacerbating it.”

The Canada Mortgage and Housing Corporation has estimated the country needs to build 3.5 million more homes by 2030 than it is currently on track for, to help achieve some semblance of housing affordability.

SOCIAL PRESSURES NOT LIMITED TO HOUSING: REPORT

The TD report stresses that social pressures are not limited to housing and that other areas like health-care and social support systems are also not keeping up with Canada’s population expansion.

Karate Kid’s life lessons apply to policymakers too. This “great Canadian migration” has been met with a combination of optimism and apprehension. Read more in our latest report. #CdnEcon https://t.co/2OWbzGvU9p pic.twitter.com/Un79N5IrFm

— Beata Caranci (@TD_Economics) July 26, 2023

In 2021, the Organisation for Economic Co-operation and Development estimated that Canada ranked 31 of 34 countries in the number of acute care hospital beds on a per capita basis.

The economists say this is “unlikely to have improved” given Canada’s rapid population growth, despite provincial and federal governments’ efforts to recruit more health-care workers and fund more hospital beds.

“Greater thought and estimation needs to occur on what’s a true absorption rate for population growth. Policy cannot be singularly focused on the perceived demands of employers, and even educational institutions,” they suggest in the report. 

CANADIANS NEED TO FOCUS ON THE BIGGER PICTURE, ECONOMIST SAYS

Skuterud said his “biggest concern” is that Canadians are “entirely focused” on the housing market rather than what’s happening in the economy as a whole.

“What is happening in the housing market is happening much more broadly,” he said.

Instead, Skuterud said Canadians must focus on the bigger picture, or the country’s capital stock as a whole, as opposed to just residential capital, which refers to housing, when envisioning a more prosperous Canada.

“Capital includes business capital, which is like machinery and equipment, intellectual property, factories, buildings, and it includes social infrastructure, a lot of which is government owned, so that’s like public transportation systems, health-care systems, schools,” he explained.

“All this kind of capital is a huge part of what allows Canada to be rich and productive.”

In a paper released in June, Skuterud and his co-authors argue that Canada is not well-positioned to leverage heightened immigration to boost GDP per capita, primarily due to weak capital investment and quantity-quality tradeoffs in immigrant selection.

In other words, Skuterud said Canada is not investing enough in machinery, equipment and technology, which would reduce the demand for labour and increase productivity.

At the same time, he said Canada is relying on an increasing number of temporary foreign workers (TFWs), including foreign students, to fill in labour gaps at low wages as opposed to paying domestic workers more or bringing in high-skilled immigrants to boost the economy and overall productivity in Canada.

According to the TD report, there was a 68 per cent jump in the number of positions approved for TFWs in 2022 due to the federal government’s easing of access to low-skilled TFWs.

This, Skuterud said, does not boost the GDP per capita, or breakdown of the country’s economic output per person, but rather undermines labour productivity and average economic living standards in the population. According to another recent report from TD, Canada has lagged behind the U.S. and other advanced economies in terms of real GDP per capita despite recent years of “headline growth.”.

“When the population grows faster than the capital stock, then there’s less capital per person and that makes us poor,” Skuterud said.

CLOSING THE DOORS TO NEWCOMERS IS NOT THE SOLUTION: FRASER

In an emailed statement, Immigration Refugees and Citizenship Canada told CTVNews.ca that its 2023-2025 Immigration Levels Plan “seeks to strike a delicate balance of needs for the country and our international obligations.”

The department said the plan focuses on attracting skilled workers who will contribute to Canada’s economy and tackle labour shortages, while recognizing the importance of family reunification, facilitating the arrival of spouses and common-law partners and helping the world’s most vulnerable populations through refugee resettlement and other humanitarian responses.

The federal government takes into account “extensive engagement” with provincial and territorial representatives, as well as public opinion research and stakeholder consultations, in setting the number of permanent residents that Canada plans to welcome, IRCC added.

“The Government of Canada continues to work with provinces and territories to ensure Canada is well positioned to attract and retain newcomers, who make significant contributions to our communities economically, socially, and culturally,” the statement reads.

“This includes an ongoing commitment to ensure we are making housing accessible and affordable, and working with provinces and territories to ensure we have the right resources and supports available to newcomers to ensure they can succeed in Canada.” 

New Housing and Infrastructure Minister Sean Fraser, who previously served as Canada’s immigration minister, has said closing the door to newcomers is not the solution to the country’s housing crisis and has instead endorsed building more homes to accommodate higher immigration flows.

“The answer is, at least in part, to continue to build more stock,” Fraser told reporters after being sworn into his new role.

On Tuesday, Conservative Leader Pierre Poilievre slammed the Liberal government’s immigration strategy, but did not answer questions about whether he would consider reducing the government’s current immigration targets.If elected, he said a Conservative government would base its immigration policy on the needs of private-sector employers, the degree to which charities plan to support refugees and the desire for family reunification.

“I’ll make sure we have housing and healthcare so that when people come here they have a roof overhead and care when they need it,” Poilievre told reporters on Parliament Hill.

“I’ll make sure that it’s easier for employers to fill genuine job vacancies they cannot fill.”

With files from The Canadian Press