Increase in Newcomers to Canada Will Push Home Prices Higher and Erode Affordability: Report

Canada needs 100,000 new houses per year to accommodate feds' immigration plan, Desjardins report finds

Various condo projects under construction in Langford, B.C., on Oct. 22, 2021. (The Canadian Press/Chad Hipolito

Canada will need an estimated 100,000 more houses constructed per year to accommodate the federal government’s most recent immigration targets, according to a new report analyzing the impact of increased immigration on provincial housing markets.

Housing starts would have to increase immediately by almost 50 percent and remain at that level through 2024 to offset higher home prices due to immigration, says a Feb. 13 report by Desjardins Economic Studies.

“Increasing the housing supply beyond the typical demand response would also take pressure off prices but requires extraordinary policy intervention and resolve,” said a statement issued by Desjardins, a financial institution offering banking and insurance services.

The different provinces that immigrants ultimately settle in will determine the effect on Canada’s housing market and prices, says the report.

“If these newcomers to Canada continue the recent trend of moving to Ontario and British Columbia, affordability there and nationally will erode further. However, if they move to places that have done a better job historically of integrating immigrants, such as the Prairie provinces, this will provide a substantive offset to the impact of higher immigration on home prices,” it says.

Looking at historical indicators, the report concludes that “the supply response is likely to be insufficient,” which will cause a spike in prices and less affordability across the country, especially in provinces that already have high prices.

If the influx of immigrants followed 2016 patterns and relocated to the Prairies, it would support higher economic growth and reduce pressure on home prices and housing affordability in B.C. and Ontario, the report said. It noted that home prices would be lower overall if more newcomers move to the Prairies.

High Prices

Regardless of where new immigrants move to, Canada will have to immediately start construction of about 100,000 more houses than the baseline on average in 2023 and 2024, which would “lead to the highest level of housing starts in Canadian history.”

“This is much more ambitious than the federal government’s plans, most recently discussed in Budget 2022,” the report says.

The report notes that the rate at which immigrants are arriving in Canada is outpacing the country’s ability to house newcomers. If there are no new government policies to accelerate homebuilding, it says, prices will rise quickly in 2024, and fewer Canadians will be able to buy a home.

Canada has been building houses at close to record rates since the start of COVID. The report cautions that blaming immigration solely for a spike in housing prices would be inaccurate, given that Canada is having a challenge building houses on a sustained basis.

The report suggests barriers such as “exclusionary zoning and the use of heritage designations” are often cited as the reason for higher home prices, lower density and urban sprawl, along with development fees which municipalities use for revenue.

The report also notes the problems of labour shortages and supply issues. It says that while a surge in new immigrants will push home prices higher and erode affordability, if the government reduces housing red tape, more young immigrants will enter the labour force and offset Canada’s aging population.

“Canada needs talented, young immigrants to increase productivity and offset the economic and fiscal drag from aging,” states the report.

“Economic immigrants are more likely to be employed and have higher earnings than native born Canadians, thereby raising Canada’s economic potential. Turning them away because of an inability or unwillingness to build more housing would leave Canada worse off.”

Last year, Canada reached 431,645 immigrants last year, setting a new record. The country is on track to have immigrants make up 30 percent of the population by 2036. In contrast, immigrants made up 20.7 percent of the population in 2011.

The federal government plan sets targets for immigration to 465,000 people per year in 2023, 485,000 in 2024, and 500,000 by 2025.