Home Month and Year June 2023 Immigration Boom vs. Housing

Immigration Boom vs. Housing

“Where will they all live?”

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Although Calgary is faring much better than some other major Canadian areas, the impact of immigration on Canadian housing is significant, urgent but not very complicated. “Where will they all live?”

According to Canada’s latest Immigration Levels Plan for 2023-2025, the country hopes to welcome a record-breaking number of immigrants over the next three years. The annual targets are 465,000 permanent residents in 2023; 485,000 in 2024; and a milestone goal of 500,000 in 2025.

Last year, the top three countries of origin for new immigrants were India (108,080), China (28,700) and the Philippines (20,110).

While immigration occasionally flares up as a sometimes-controversial hot topic, impartial and unbiased demographers, economists and current and former federal governments emphasize the upsides. High numbers of immigrants are good, important and necessary.

The summarized consensus of the vital positives is: the high targets are in place to help Canada compensate for its aging population and low fertility rate, which continue to compromise the country’s available labour force. The experts make the case for Canada’s high immigration targets as an essential boost to sustain the Canadian labour market and ensure that Canada’s economy remains strong.

On the flip side, some economists, major municipalities, social service providers, lenders, developers and landlords voice cautious concern. Will Canada be able to house all the immigrants it hopes to welcome by 2025? And, with complex industry trends and projections, “where will they live?”

Some analysts share concerns that, although the immigration target numbers may be high, it may also be an undercount when compared to Canadian reality. Because, while the focus is often on new immigrants arriving in a given year, many newcomers are already in Canada as non-permanent residents, and Canada often underestimates the actual totals in its immigration data.

A recent CIBC Economics study, the government may have underestimated numbers by more than 100,000 just in 2022. The study also points out the challenges of estimating newcomer impact on housing.

Not only economists and experts but immigrants and Canadians alike are worried that this country may  not be able to handle the housing needs of the immigrants Canada will welcome in the next three years, and beyond. Particularly given Canada’s already problematic housing crisis.

Earlier this year, Victor Dodig, chief executive of CIBC warned that that the influx of immigrants will set off the largest social crisis over the next decade, if something is not done to correct the housing shortage.

“Canada wants 1.5 million more immigrants by 2025,” notes the plugged-in and experienced Randall Bartlett, senior director of Canadian Economics with Desjardins Group. “That influx will increase home prices and lower affordability, unless the country moves swiftly to build much-needed accommodation.

“The bottom line is that Canada must immediately boost housing starts by almost 50 per cent, just to keep fundamental demand for housing from racing ahead of supply.”

Bartlett, the co-author of the Desjardins Group report, estimates that that nationally housing starts will need to increase by an average of 100,000 units, from their base case of 210,00 this year on an annualized basis, and a base case of 215,000 in 2024.

“That rate of construction would set a record for the fastest pace of housing starts in Canadian history, he says. “And I am not so confident that it will happen. Using history as a guide, the supply response is likely to be insufficient to prevent an increase in prices and an erosion of affordability,” he says.

The Desjardins report also cautions about the housing impact of the targeted high numbers of immigrants projected for the next three years. “Leaving immigration at 2018-2021 levels would have a much more pronounced impact on keeping home prices lower, and minimizing the erosion in affordability,” the report warns.

Facts are facts. Canadian home prices fell for an 11th straight month as rising interest rates continued to limit what prospective buyers can afford, ramping up pressure on the country’s housing market.

Earlier this year, according to the Canadian Real Estate Association, the national benchmark price for a home declined 1.9 per cent to C$714,700 ($532,060). Down 15 per cent from last year’s peak.

The Canadian housing market has seen an abrupt reversal from its frenzied pandemic days, as the central bank started raising interest rates last year to combat inflation. The fast rise in borrowing costs has priced-out buyers, squeezing affordability even with prices down.

The overall housing situation is aggravated by rising interest rates that have made buying a home unaffordable for many people, pushing them into the market for rental properties. And although experts and analysts caution about the impact of immigration on all levels of housing – real estate markets and new builds – the crunch is particularly for rentals.

While various experts caution about the undercount of actual immigrants who urgently need a place to live, many housing sector insiders outright warn that, with a few exceptions like Calgary, the situation is serious and dire, especially for immigrants needing apartments.

The numbers and the trends do not lie. Canada is experiencing its fastest population growth since the 1970s, and apartments have become extremely hard to find. The national vacancy rate on rental buildings is below 2 per cent, the lowest since 2001.

In some ways, Calgary is a bit of a positive, at least stable, anomaly, compared with some other major Canadian areas.

Shamon Kureshi, a board member of the Calgary Residential Rental Association (CRRA) and president and CEO of Hope Street Management Corporation, points out: “A cursory review of CRRA members highlights the trend of increasing demand from those persons who have recently arrived in Calgary. Of note, we seem to find many such persons originate abroad but arrive in Calgary as a second stop. Recent trends seem to suggest that many overseas immigrants arrive in one of Canada’s bigger cities, but eventually arrive in Calgary.

“We attribute this to our edge in housing affordability – rents in Calgary are among the lowest in Canada’s big cities – and our buoyant jobs market. One reason for this trend in improved affordability is our province’s regulatory environment. Alberta does not have a regime of rental price regulation, instead relying on free market factors like supply and demand.

“These factors encourage investment from landlords,” he adds, “which improves an already tight supply of rental homes and keeps Calgary’s rental rates among the lowest in Canada.”

Whether it is new Calgary immigrants or significant inter-provincial migration of people from other parts of Canada opting for the Calgary good life, Calgary housing, particularly rentals, fare very well by comparison.

“Conversely, regulated rental markets like Vancouver or Toronto have an effect of scaring off investment from landlords, reducing supply considerably,” Shamon Kureshi notes. “This leads to sky high rental rates in regulated cities like Vancouver and Toronto, where a mere one-bedroom unit can fetch as much as $3,500 per month, nearly double Calgary’s average.

“There’s no doubt immigration is causing a Canadian housing problem but, at least here in Calgary, we’re in pretty good shape.”

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