In today’s Konfidis Insights we highlight select excerpts (and provide commentary related thereto) from a recent Globe and Mail article: Canada wants to welcome 500,000 immigrants a year by 2025. Can our country keep up? (Please see full article here.)
Policy makers say higher immigration is necessary to fuel Canada’s economic growth, and in particular, to ease labour shortages, but with a population boom comes growing pains. Every year, Canada adds a big city – in a sense. The mass of individuals are spread around, mostly to urban centres, but increasingly to suburbs and far-flung communities.
Konfidis’ assessment of fundamental data support this trend of increased population growth in the suburbs and secondary markets. Please see recent Konfidis Insights articles Cities’ cores are hollowing out, but small towns tell a different story and Ontario’s Secondary Markets Population Boom Boon for more on this topic.
The expansion is historic. More than 700,000 people have been added over the past year, roughly the same as the population of Mississauga, the seventh-largest municipality in the country. Since 2016, the country has grown at nearly double the rate of its Group of Seven peers. For the most part, that growth is driven by immigration. The push is deliberate. Policy makers say higher immigration is necessary to fuel Canada’s economic growth, and in particular, to ease labour shortages that have frustrated the corporate sector.
However, a population boom [comes with] its share of growing pains. Consider that over the past year, fewer than 200,000 housing units were completed. There were 3.6 new residents for every home added, the highest ratio since at least 1991. There is a fundamental mismatch between home supply and demand – and the population boom is contributing to the divide.
See Konfidis Insights article A Deep Dive into (the lack of) Housing Supply for more information on this topic.
To cope with the affordability crisis, a growing number of people are fleeing our cities. They include teachers, nurses and construction workers – the very people who keep those cities running.
In this fraught environment, Ottawa has its foot on the accelerator. After admitting about 405,000 permanent residents last year, the federal government is aiming for 500,000 in 2025. And that’s just a portion of the migration wave: At last count, there were 1.4 million residents with temporary work or study permits. Canada is facing a complicated adjustment. Notably, developers are scrapping or delaying housing projects, owing to rising interest rates and waning profitability. Just when more homes are needed, fewer are being built.
Several economists question why the federal government would create more demand for services, when so many pillars of social infrastructure are in distress. For its part, the federal government says the solution to so many of these problems is simple: more immigration. They’re planning to bring in more doctors and nurses from abroad, along with people to build homes.
Increasingly, recent immigrants are bypassing the largest metro areas – Toronto, Vancouver and Montreal – to settle elsewhere, although a slim majority still favour those regions, according to the latest census results. However, costs are rising quickly in other cities, too, as they experience fervent demand from migrating people.
The task ahead is nothing short of gargantuan. CMHC says that, in order to restore affordability back to levels in 2003 and 2004, Canada would need to build 3.5 million more homes than projected by 2030. Earlier this year, the federal government unveiled billions in new spending for housing, with a goal of doubling construction over the next decade. That plan looks dead on arrival amid higher borrowing rates.
There is, of course, another problem: labour. In a recent report, CMHC said there were not enough skilled workers to build the homes so desperately needed. “Even under more ideal conditions, I don’t think we have the capacity to build at a pace that matches the demand through population growth that we’re seeing,” said Shaun Hildebrand, president at real estate firm Urbanation.
For all of Ottawa’s talk of targeting the best and brightest, the federal government is also allowing more cheap foreign labour into the country. Earlier this year, it overhauled the Temporary Foreign Worker (TFW) program, largely so employers could access more low-wage labour.
Colleges and universities, meanwhile, are ramping up their intake of foreign students, who mostly don’t need work permits. Increasingly, those students are taking jobs to rack up points for their permanent residency applications. Around 1.4 million people had temporary work or study permits at the end of 2021, an increase of 85 per cent since 2015. That’s 640,000 people – about equal to the city of Vancouver – who have been added in just six years. Their ranks are set to accelerate this year, after policy changes.
Of importance reference, international students, with a nearly certain propensity to rent, bolster the pricing of rental transactions in these relevant markets.
Higher immigration is a guiding principle for this iteration of the federal Liberal Party. Time and again, the party frames immigration as the antidote to an aging population, helping to grow the pool of labour market participants – and thus, too, the economy. “Immigration is not just good for our economy, it’s essential. We can’t get by without it,” Immigration Minister Sean Fraser told reporters at a recent news conference.
With this backdrop, Konfidis continues to see a very compelling landscape for single-family rental ownership in Ontario’s secondary markets as the long-term supply and demand fundamentals that support strong home price appreciation and inflation protection.