Federal government’s turbo-charged immigration helping drive housing demand

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Appeared in the Toronto Sun, July 3, 2024
Federal government’s turbo-charged immigration helping drive housing demand

According to a recent Statistics Canada report, Canada’s population has just hit the level it was previously expected to reach in 2028. That startling finding underscores the extraordinary growth of the country’s population since the pandemic, driven by record inflows of both permanent and “temporary” immigrants.

A rapidly expanding population can bring some benefits, notably by stimulating overall economic activity and providing additional workers. But it’s not an alloyed good. The number of Canadian residents is increasing faster than economic output (gross domestic product), which has translated into an unprecedented series of declines in per-person GDP over the last several quarters. Productivity is stagnant, as newcomers struggle to find their way in the economy and job market. In addition, a significant share of new immigrants don’t seek or obtain employment, dampening immigration’s contribution to the growth of economic output.

Meanwhile, unusually brisk population growth is putting considerable strain on public services and infrastructure, in part because the federal government did essentially nothing to plan or prepare for the dramatic surge in immigration that its own policies sanctioned. The “downstream” challenge of managing the pressures flowing from turbo-charged immigration falls mainly to provinces and municipalities, not faraway Ottawa.

All of this has implications for the hottest issue in Canadian politics today—housing affordability and supply. Like the rest of us, newcomers need a place to live. Immigration is the predominant source of incremental housing demand in much of the country, particularly big cities. Demand for housing also comes from the existing Canadian population, as young adults establish separate households, marriages dissolve, and people move to other communities or neighbourhoods for work, education or to retire.

Unfortunately, homebuilding has been running far behind what’s necessary to accommodate immigration, let alone meet the demand from household formation among current residents. In 1972, when the population stood at 22 million, roughly 220,000 new homes were added to the Canadian housing stock. In 2023, with a population of 40 million, housing starts were only a little higher than half a century ago.

This brings us to the Trudeau government’s multi-faceted housing plan, rolled out over the past year and finalized with great fanfare in the 2024 federal budget. The government has pledged to somehow build 3.9 million new homes by 2031—just seven years from now. This is equivalent to 550,00 housing starts per year. It’s an aspirational target, but also a patently unrealistic one.

The federal government has little control over what happens in the towns, cities and provinces where most of the policy and regulatory decisions affecting homebuilding and community development are made. Moreover, the Canadian construction sector doesn’t have the spare human resources or organizational capacity to quickly double housing starts. Even today, the construction sector’s “job vacancy rate” is higher than the all-industry average.

The year 2021 marked an all-time record for Canadian housing starts at 270,000. Starts fell over 2022-23, amid higher interest rates. This year, RBC Economics projects housing starts of 251,000, rising to 273,000 in 2025. To put it mildly, these figures are inconsistent with Ottawa’s ambitious plan to deliver 550,00 new homes per year.

We’ll likely see more and faster homebuilding over the next few years, as governments at all levels direct more money and political attention to housing. But a doubling of housing starts simply won’t occur within the Trudeau government’s politically manufactured timeline. One thing seems certain—Canada’s housing “crisis” will continue to fester.

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