Report warns of unintended economic consequences in housing fix
Canada's decision to curb immigration levels in response to the housing crunch could create unforeseen consequences, a CIBC analysis has warned.
While the move might ease housing pressures, the report suggests it could also trigger labour shortages and fuel inflation in certain sectors if not carefully managed.
The CIBC report highlights a gap between Canada's population growth in recent years and its housing supply.
“We estimate that while the population has risen by roughly 1.1 million (approximately 35%) more than housing availability could accommodate since 2019, the increase has eclipsed labour force needs by ‘only’ between 200,000-700,000 (5%-20%),” the report said.
CIBC economist Andrew Grantham explained: "Given the fact that we have an aging domestic workforce, excess population growth is actually a lot less."
He warned that focusing solely on aligning immigration with housing availability could create a labour force gap.
“Everything that has been written on population growth… has really been only on housing,” Grantham added. “But that’s just one part of the issue. We have labour force needs as well. Everyone needs to be aware of this balancing act, whether it be policymakers or the Bank of Canada.”
Prime Minister Justin Trudeau's administration has taken several steps to slow the intake of newcomers in the past six months, including imposing limits on temporary residents and new international students and restricting eligibility for work permits for post-graduates and their spouses.
The limitations were introduced after Canada saw a population increase of more than two million people in the past two years, largely due to a rise in temporary residents. Economists now anticipate Canada's population growth rate will decrease significantly, estimating an annual increase of about 400,000 compared to last year’s growth of 1.25 million.
Grantham also noted the essential role newcomers play in the Canadian labour market, particularly as the domestic workforce ages.
"Young newcomers have helped slow the decline in labour participation rates," he said.
Non-permanent residents and new immigrants have been crucial in filling job vacancies as the economy recovered post-pandemic, helping to mitigate persistent wage pressures.
Read next: Immigration — What will be the extent of its impact on Canadian housing?
However, the rapid population increase might have been "too much, too soon," as newcomers felt the most significant impact when the demand for labour eased. The unemployment rate for non-landed immigrants and those who moved to Canada less than five years ago has risen, now sitting above six percent and well above their levels in 2019.
"It’s a very difficult balancing act for the next two or three years," Grantham said.
Meanwhile, Bank of Montreal economist Robert Kavcic emphasized that this isn't a matter of being pro- or anti-immigration but about managing appropriate levels of inflows.
"Clearly, 1.3 million per year is too much for the labour market to absorb," Kavcic said, suggesting that a target of 400,000 to 500,000 permanent residents annually would be more suitable to accommodate future retirements and provide necessary infrastructure.
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