Immigration’s impact on home prices
There has been a lot of debate about Canada’s housing markets suffering from a lack of supply, but many argue high levels of immigration are the key contributor to a shortage and high home prices.
It also doesn’t need to be only about supply or only demand. Both can occur at the same time, and experts say both should be tackled.
Housing markets respond to demand generated by households. An increase in population or the purchasing power of buyers is likely to exert upward pressure on housing prices and rents. But how much of that pressure is generated by immigration, the biggest factor driving Canada’s population growth?
The interest in that question has increased since housing affordability become a significant concern in large cities in Canada. Where we have seen housing prices double in the City of London and have seen record numbers of Homes for Sales in London and area.
Rapid price escalation in Toronto and Vancouver during 2016-17 raised concerns about the impact of foreign money, something provincial governments addressed by implementing measures including a foreign homebuyers’ tax.
But those concerns, and the resulting tax measures, primarily involved the influence of non-resident speculators, not immigrants looking to actually build lives here.
In the past, research focused primarily on the shelter needs of recent immigrants who struggled to find adequate employment in Canada. New immigrants usually found housing in low-income and predominantly rental neighbourhoods. Over time, as they assimilated, immigrants transitioned from rental to owner-occupied housing.
Immigrants to Canada may not necessarily be low-income. For instance, investor-class immigrants are usually wealthier than the native-born population, and could have a more substantial effect on housing prices.
Immigration is also responsible for the net increase in the Canadian population. With an ageing workforce, the influx of younger and highly educated immigrants is even more critical for the Canadian economy. Thus, between 2019 and 2021, Canada planned to bring in more than one million immigrants, of which most have been economic migrants. Due to the global pandemic these numbers have been deferred.
In the past, research focused primarily on the shelter needs of recent immigrants who struggled to find adequate employment in Canada. New immigrants usually found housing in low-income and predominantly rental neighbourhoods. Over time, as they assimilated, immigrants transitioned from rental to owner-occupied housing.
Immigrants to Canada may not necessarily be low-income. For instance, investor-class immigrants are usually wealthier than the native-born population, and could have a more substantial effect on housing prices.
Immigration is also responsible for the net increase in the Canadian population. With an ageing workforce, the influx of younger and highly educated immigrants is even more critical for the Canadian economy. Thus, between 2019 and 2021, Canada plans to bring in more than one million immigrants, of which most will be economic migrants.
Canada’s rental markets, particularly in large cities, have seen rental prices slashed and more supply hitting the market, mostly due to far fewer international students and immigrants arriving this year amidst the global pandemic. However, a boost in immigration over the next three years could absorb rental inventory quickly, tightening the market back up and increasing average rents again.
Research in Canada has shown that the overall impact of immigration on housing markets is modest at best in most cases. The effect could be substantial in the case of wealthier immigrants destined to select neighbourhoods.
The more important realization is that an absence of immigration would result in a declining population and ageing of the workforce, which could have a much larger negative impact on Canadian housing markets.
Despite limited immigration in 2020 and 2021 due to the Pandemic – the surge in demand for housing was ever more evident. Supply was limited – builders were unable to get permits and because of Covid restrictions there was a stoppage on new build projects. Despite limited immigration there was a surge in demand – the demand was technically the same but with little influences due to the record low interest rates. However, due to limited new inventory coming in the market buyers were limited to buying a resale property. Considering the level of proposed immigration put forward by the federal government – new immigrants will be looking for a home – this means a continuous high level of demand and the only way to offset this demand is by increasing the supply.
