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Canada’s Immigration Quotas Just Grew, But Can the Country Sustain It?

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The federal government has amended its plan to welcome 1.2 million immigrants between 2021 and 2023 by announcing that 1.3 million newcomers will call Canada home between now and the end of 2024. While Canada’s economy would sputter without elevated immigration, there are implications for the country’s housing market.

The initial Immigration, Refugees and Citizenship Canada announcement in October 2020 entailed welcoming 401,000 immigrants in 2021 — because of the coronavirus, it barely met the target by offering citizenship to select temporary immigrants — 411,000 this year and 421,000 in 2023, but now it’s raising the quotas to 431,645 in 2022, 447,055 next year, and 451,000 in 2024.

According to a report published by Scotiabank last year, not only does Canada produce the fewest units of housing per 1,000 people compared to its G7 counterparts, elevated immigration numbers are actually exacerbating affordability challenges. The report in no way inferred that immigration harms Canada, but it elucidated the ramifications that disparate policy decisions — or, considering policymakers’ indolence towards building more housing, lack thereof — can have on Canadians’ quality of life. Not only is homeownership financially onerous in the country’s big cities, and increasingly in smaller communities, too, rental prices are just as daunting.

READ: Today’s Housing Market Looks a Lot Like 2017’s… That Should Worry Everyone

Compounding the issue of surging rental prices in major cities like Toronto and Vancouver, wage growth in Canada is sluggish. Statistics Canada data revealed wages grew by 2.7% year-over-year in December, and as Benjamin Tal, Deputy Chief Economist at CIBC Capital Markets, told BNN last month, there’s too much competition in the labour market, especially compared to Canada’s significantly more populous neighbour to the south.

“To put things in perspective, [Canada] got 410,000 new immigrants in 2021. In the US, altogether, they got 500,000,” Tal told BNN. He explained that low immigration to the US is aggravating labour shortages, but the workforce is armed with leverage.

Dr. Murtaza Haider, Professor at Ryerson University’s Department of Real Estate Management, says immigration alone is not aggravating housing affordability woes in Canada and that, moreover, the economy would sputter, then fail, without the elevated number of new arrivals. Moreover, new housing is delivered to market too slowly, he reminds, and if the obverse were true, the relationship between rising immigration and housing prices wouldn’t be so acute.

“If we were interested in only one variable in the economy, and that’s housing affordability, then natural growth, or even growth through immigration, in the population is a challenge, but the reality is we don’t have a one-variable economy and the need for more immigrants is determined, and dictated, by the need for the economy to grow,” Dr Haider told STOREYS. “So on the one hand, businesses are complaining there aren’t enough workers, and on the other you have a very fast-aging society — and to get an idea, the number of children under the age of 15 were twice as many [as] seniors in 1986, and by 2016 we had more seniors than children in Canada. So we had a complete demographic shift because of this rapidly aging population.”

Apropos the US’s lower annual immigration numbers, Dr Haider says that, unlike Canada, the country’s fertility rate hasn’t declined to such levels that it cannot sustain itself with natural growth.

“So we’re left with no option but to bring in immigrants otherwise we’ll shrink the economy, and the option to shrink the economy is not wise, so the only option is to raise the number of workers the economy needs,” he said.

Immigrants overwhelmingly rent homes during their first few years in Canada, and Dr Haider posits that their impact on the housing market, though not negligible, isn’t as outsized as the relationship between scarce supply and growing demand might suggest.

However, their presence is certainly felt in increasingly constricted rental markets, especially Toronto’s — the city’s condo rental apartments are generally better maintained than its purpose-built stock and, therefore, command higher prices, and the vacancy rate was still 1.6% last quarter — and the issue, Dr Haider says, is that housing isn’t delivered quickly enough.

“I would say new immigrants may have a direct role in generating demand of housing and putting upward pressure on rents and not as much on housing prices, but immigrants will spend five to 10 years renting and eventually switch to becoming owners,” he said. “The issue is not increasing the number of people living in Canada, but the continued reluctance to recognize that we have done a poor job of building new housing. In the mid-‘70s, Canada built 10,000-12,000 new homes per million people, and in the last five years we have been building 5,000-6,000 per million people, so the rate at which construction takes place has been declining in Canada over the past four or five decades.”

READ: GTA Condo Prices Poised to Grow Faster Than Houses in 2022

Real estate broker and co-founder of Connect.ca Realty, Ryan Coyle, says that, in fact, one in five immigrants purchase homes in the luxury segment of the market, which is technically considered a home that costs at least $1 million. To put that into perspective, townhouses in Toronto proper, the 905 regions, and the entire GTA, averaged $1,080,284, $1,083,801, and $1,083,000, respectively, last month.

“Immigration has a lot to do with house prices in the luxury market increasing, because a lot of immigrants are coming with savings, and many are coming from countries with major cities that have real estate prices that are even higher than Canada’s and Toronto’s,” Coyle said. “Canada’s population growth is set to create records, and one in five out of 430,000, let’s say, is staggering.”

Echoing Dr Haider, Coyle says the crux of the issue isn’t immigration — without which the economy would fail, he added — but the painstakingly slow delivery of desperately-needed new supply.

The Residential Construction Council of Ontario is among the most vocal critics of Toronto’s municipal government, which its president, Richard Lyall, says is mired in so much red tape that, consequently, commencing construction takes years longer than it should. He also says the partial panacea is BIM technology which, through automation, creates efficiencies by removing bureaucratic superfluity from the equation.

“If you have the whole building and planning approvals process on that platform, that would save a huge amount of time — it would save years overall in getting projects approved,” Lyall said. “You can make that even better, in terms of the timeline, if you streamline the zoning, site plan and approvals process and make it more efficient.”

However, a functional planning department tomorrow wouldn’t immediately solve the supply and demand imbalance, proffering nary a shred, even, of optimism that housing affordability — rental or ownership — will cease deteriorating.

“In the rental market, the amount of supply is extremely low and we’re predicting double-digit increases to market rents this year,” Coyle said.

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