Central bank notes initiative will help alleviate pressures on housing market
Amidst the ongoing debate surrounding soaring housing costs, Bank of Canada governor Tiff Macklem has said the newly introduced cap on international student enrolments could offer respite from escalating rent prices.
“You saw this week the government capping student visas,” Macklem told The Canadian Press. “That, I think, will help take a bit of pressure off rents going forward.”
The federal government’s decision to impose a two-year limit on new study permits aims to rein in the burgeoning international student program. Immigration Minister Marc Miller, during a cabinet retreat in Montreal, disclosed that this year’s allocation of new visas would be capped at 364,000, marking a 35% reduction from last year’s nearly 560,000 grants. The figure for 2025 will be determined following an assessment later this year.
Surging population pressuring the market
This move stems partly from the strain that robust population growth is putting on the housing sector.
While many economists acknowledge that restricting the issuance of new study permits might help mitigate rent price inflation, the extent of its impact remains uncertain. Doug Porter, chief economist at Bank of Montreal (BMO), said that while a slowdown in rent growth is plausible, a reversal in rental rates seems improbable. “So bottom line is, I believe, we're still going to be dealing with some pretty serious rent inflation in the next couple of years,” he said.
The Bank of Canada has made significant progress in curbing inflation since March 2022, when it initiated key interest rate hikes. The pace of price increases has moderated across various sectors, although housing costs persist as a challenge unaffected by interest rate adjustments.
Despite encountering hurdles en route to its 2% target, Canada’s inflation rate stood at 3.4% in December. However, the central bank confronts a complex dilemma: rapidly escalating shelter costs coupled with limited efficacy of interest rate adjustments.
Macklem acknowledged the difficulty in forecasting housing trends, especially given the uncertainty surrounding shelter costs. December figures revealed a 6% year-over-year surge in shelter costs, outpacing overall inflation.
The discussion over how to achieve a return to 2% inflation persists within the Bank of Canada. Macklem emphasized the necessity for slower price growth in other sectors to offset escalating housing expenses.
Royce Mendes, managing director and head of macro strategy at Desjardins, said the Bank of Canada should be patient and allow for shelter price inflation to ease. “The governor should be careful about reading too much into shelter price inflation when it comes to determining the future path of monetary policy,” he said.
Housing affordability in Canada has emerged as a pressing concern post-pandemic, driven by factors such as strong population growth and increased demand from international students.
Mike Moffatt, an economics professor at Western University, highlighted the strain that the influx of international students places on the housing market. He welcomed the government’s efforts to rationalize student numbers to alleviate housing pressures.
“It's good to see the federal government start to bring some rationality back to the number of international students,” said Moffatt. “We need to bend the curve and allow the housing market to catch up to our population growth.”
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