Canada’s Immigration Reductions Offer Golden Opportunity to Address Housing Shortage

Canada is reducing the number of immigrants it accepts, which experts believe will impact the housing market in the coming years.

The government plans to cut the projected number of new residents by over 900,000 in two years, leading to a 0.4% population decrease by 2026, with growth resuming in 2027.

Robert Hogue, RBC’s chief assistant economist, explains that this reduction will help narrow the housing gap, but won’t solve the affordability crisis.

Hogue predicts a 46% drop in household formation over the next three years due to the decrease in non-permanent residents entering the country.

He sees an opportunity for Canada to address the housing shortage if homebuilding can be maintained or increased.

Rental markets and investor demand

The policy change is expected to impact the rental market in Toronto and Vancouver, potentially reducing rental prices due to lower demand.

Investor interest in residential properties may also decrease as rental income growth is projected to slow down.

Rate cuts and pent-up demand

Despite a cooling rental sector, demand for homeownership is expected to remain strong, especially with anticipated interest rate cuts stimulating housing demand.

Lower borrowing costs could attract more Canadians to enter the housing market, addressing pent-up demand among prospective homebuyers.

Temporary relief 

Lower immigration targets may help alleviate the housing supply gap, but won’t instantly rebalance the market, according to Hogue.

RBC estimates a significant gap in housing supply that will take years to resolve, especially in major markets where construction costs remain high.

While rental sector relief may come with rising vacancy rates, improving ownership affordability in major cities will take time.

“Affordability improvement will be driven by lower interest rates and income growth, but will only partially reverse the loss in affordability during the pandemic,” adds Hogue.