While the Canadian housing market is indisputably undergoing a significant correction, it will be spared an outright crash due to steady demand from immigration, say prominent economists in a new analysis.
In a report titled “Proof Point: Demographics a powerful counterforce in Canada’s housing market correction,” RBC economists Robert Hogue and Carrie Freestone write that newcomers to Canada will help support the property market through its current downturn. They point out that the flow of new permanent residents is already on the rebound from their pandemic-era lows and are in fact set to hit record numbers, given Canada’s updated immigration targets.
“Canada is in the midst of a steep housing correction. And though this cycle has yet to fully play out, it’s unlikely to morph into the type of prolonged spiral observed in the US during the 2008 financial crisis. One of the main reasons: demographic demand for housing in Canada is strong -- and it’s getting even stronger,” Freestone and Hogue write.
“We expect the number of Canadian households to rise by 730,000 by 2024 compared to 2021, adding 240,000 new households annually. Immigration is key to this surge: Ottawa’s targets are set to bring in a record 1.3M new permanent residents, adding 555,000 new households by 2024.”
Canada’s population is growing at a pace double that of the OECD average over the last decade.
“This surge, combined with shrinking household sizes, will strengthen demand for housing (whether owned or rented) and act as a powerful counter to sliding sales and prices -- eventually putting a floor under the correction,” states the report.
As well, Hogue and Freestone point out, as Canadians are increasingly living in smaller groups, the overall number of households is on the rise; over 700,000 households will be formed by 2024. In fact, they say, this is an oft-overlooked “critical factor” on household demand; in the five years leading up to 2021, the average household size declined by 0.02 people, which spurred an increase in total household numbers by 140,000 (or 30,000 per year).
“This trend will be responsible for just under 90,000 of the 730,000 new households created by 2024 -- and will provide a significant boost in housing demand,” states the report. Shrinking household size can be generally attributed to parents having fewer children, as well as the prevalence of one-person households -- the most common type as of 2016, with 30% of Canadians living alone.