Lower Immigration to be a Drag on Housing for Years, Says TD
A drop in immigration levels will have “lasting impacts on ownership housing” in Canada for years to come, according to a research report from TD Economics.
TD economist Rishi Sondhi wrote that the resulting significant slowdown in the country’s population growth explains one-third of TD’s lower expectations for housing growth.
“From 2016-2019, Canada saw a tremendous expansion of its population base as federal immigration targets were raised, and a myriad of factors drove a historic intake of foreign students,” Sondhi wrote. “This underpinned home sales, drove robust demand for rental housing, and supported the fastest pace of homebuilding since the Global Financial Crisis.”
But COVID-19 has “thrown sand in the gears” of Canada’s population growth, he continued, with the national population count growing by just 75,000 in Q1 of 2020, marking the slowest pace of growth since 2015. Sondhi noted that economic data points to Q2 posting even weaker growth as the number of immigrants arriving in April fell 80% compared to a year earlier.
While some of this decline will be temporary, ongoing travel fears, government travel restrictions, a pandemic-related slowdown in processing times for immigration applications and tepid economic growth are likely to keep population growth below its pre-COVID level of 1.5% for “the next few years.”
“Weaker population growth is a major factor underpinning our downgraded forecasts for home sales, prices and starts across the country through 2021,” Sondhi wrote. “This more moderate pace of population growth will weigh on housing market activity across the country.”
A 2019 Statistics Canada survey found that homeownership rate among immigrants has increased substantially in recent years, roughly matching that rate of the Canadian-born population (Chart 6).
Not only that, but immigrants also tend to own more expensive properties compared to non-immigrant purchasers, the study found (Chart 7).
“This data suggests that (all else equal) weaker immigration flows would weigh disproportionately on average prices, which are influenced by more expensive properties,” Sondhi wrote.
In terms of which regions will be most affected, immigrants tend to settle in Toronto, Vancouver, Montreal and Calgary, which accounted for more than 60% of immigrant inflows in 2019.
Montreal may be less affected by the slowdown since homeownership rates are lower compared to other jurisdictions, Sondhi noted. While in Calgary, an elevated unemployment rate is likely to yield slower population growth and result in a bigger hit to Calgary’s housing market.
In the Atlantic region, too, stats show immigrant homeownership rates are generally higher compared to other jurisdictions.
Sondhi noted that reduced immigration isn’t the only issue affecting housing growth. Elevated unemployment will account for about two-thirds of the downgraded housing forecast, offsetting positive factors, such as the presence of significant pent-up demand, supportive demographics and low interest rates, which should result in “modest price growth in the second half of 2020 and a mild decline next year.”