Last week, the federal government of Canada announced an Immigration Plan to Grow the Economy including increasing immigration targets for the next three years, aiming to admit almost 1.5 million new permanent residents to Canada by the end of 2025, in an effort to address significant labour shortages.
Last year Canada welcomed over 405,000 newcomers - the most ever in a single year. The Government is continuing that ambition by setting targets in the new levels plan of 465,000 permanent residents in 2023, 485,000 in 2024 and 500,000 in 2025. The plan also brings an increased focus on attracting newcomers to different regions of the country, including small towns and rural communities.
Canada’s new immigration targets will help housing recover — and push prices higher long-term. Adding newcomers skilled in building and construction will help boost housing supply, said Robert Hogue, a senior economist with the Royal Bank of Canada. “Right now we don’t have nearly enough construction workers in the market to build the amount of housing we need, so this could be a significant help in the market,” he said.
Long-term, population growth boosts home prices and values, which may help to bring the real estate market out of its slump, said Douglas Porter, chief economist and managing director of BMO Financial Group. Often, in regions that have strong population growth, home prices rise over time — increased demand raises home prices and pushes for more homes to be built.
As profiled by the Globe and Mail on Friday, diversity and employment-friendly secondary cities around the Greater Toronto Area (GTA) are poised to benefit from the coming Population boom.
The city of Peterborough, for example, is changing thanks to an influx of new residents drawn by more affordable housing. Peterborough could be the unofficial Syrian refugee capital of Canada. “In the past few years over the course of the pandemic we’ve certainly seen an influx of people who moved here because the housing stock was cheaper,” Diane Therrien says, the outgoing mayor. “The demographics have shifted.” The changes brought in entrepreneurs with new businesses, younger residents and families that revitalized the community, and greater cultural diversity, Ms. Therrien adds. “[This influx has] sent rental costs into the stratosphere with a vacancy rate of less than 1 per cent, she points out.”
The new influx gave Peterborough a peek at what may lie ahead for other similar-sized centres in Canada. With a population boom expected over the next 20 years, Statistics Canada predicts the population will grow to between 43 million and 52.5 million by 2043 from the current 38 million.
While metropolitan areas will absorb the bulk, smaller centres stand to reap some of the benefits of population growth. It’s a trend already in evidence: According to the most recent census, the share of immigrants who settled in Toronto, Vancouver or Montreal has continued to decline, falling from 56 per cent in 2016 to 53.4 per cent in 2021. Urban centres outside of those cities saw the greatest increase but 4.4 per cent settled in small urban areas and 3.2 per cent settled in rural areas.
“We don’t really know how it’s going to unfold yet but one thing we do know is we’re going to need a lot more housing,” says David Amborski, director of the Centre for Urban Research. “We’ve got to make sure we meet that demand and it has to be supply of all types of housing and all locations. It can’t just be the missing middle. It can’t just be the urbanized high-density.” “Non-urban centres may have cheaper and more land available, though they still face high construction costs and a shortage of skilled labour,” Mr. Amborski says. Communities where demand is not as great may be in a better position as the population surges, he suggests.
At Konfidis, we dig in beyond the headlines and into the data. Looking further into the Statistics Canada data referenced in this article, we can see a clear trend in the share of Ontario immigration’s intended designations away from Toronto and into the GTA’s surrounding secondary markets such as London or Kitchener-Cambridge-Waterloo (see the charts below). As new Canadian’s seek affordable larger-format housing, Konfidis anticipates this trend to continue, bolstering the investment thesis for single-family rental investment properties in these secondary market regions.
Further supporting this investment thesis, these demand drivers for housing alternatives (including single-family rental) are clear – Canada is simply not building enough housing to meet the demand (see the recent Konfidis Insights - A Deep Dive into (the lack of) Housing Supply). And to meet this increasing demand of housing, the Ontario Government recently introduced the “More Homes Built Faster” initiative. For reference, please see last week’s Konfidis Insights article which focused on this matter.
With this backdrop, Konfidis continues to see a very compelling landscape for single-family rental ownership and the long-term supply and demand fundamentals that support strong home price appreciation and inflation protection.