Reduced immigration could put a short-term dampener on Canada’s housing market

Immigration has been a big driver of Canada’s housing market over the decades, with new Canadians representing a sizable – and ever-growing – homebuying cohort.

But amid a rising affordability crisis and chronic lack of housing supply, the federal government has been steadily tightening the taps on the flow of newcomers to Canada in a trend that could have huge consequences for the national housing outlook.  

Fresh off victory at the polls in April’s election, prime minister Mark Carney said he would cap the total number of temporary workers and international students at under 5% of Canada’s population by the end of 2027, a “sharp drop” from a recent high of 7.3%.

Carney said he was introducing that policy to ease pressure on housing, public infrastructure and social services, just months after his predecessor Justin Trudeau announced he was cutting overall immigration targets by about 20% in the coming years.

Trudeau’s government also introduced a ban on non-resident foreign buyers in Canada’s housing market in a bid to stave off huge price appreciation and speculation, especially in major urban centres like Vancouver and Toronto.

Some observers including Bank of Montreal (BMO) senior economist Sal Guatieri (pictured top) are sceptical about whether the government can achieve a net decline in immigration before 2027 by reducing the number of temporary arrivals more than it increases permanent resident immigration.

But Guatieri believes efforts to tamp down immigration in the years ahead will have significant effects on the Canadian housing outlook and the wider economy.

Gloomier economic outlook could spur BoC to cut rates

With the latest quarter showing population growth has dipped below 1% at an annualized range, trending towards a potential flat reading for a year or two before more normal immigration levels of about 1.5% return, lower immigration “will be a bit of a dampener on consumer spending and, of course, the housing markets and rental markets for a little while,” Guatieri said.

That could harm gross domestic product (GDP) growth and darken prospects for the Canadian economy, potentially putting the onus on the Bank of Canada to cut interest rates more steeply than originally forecast.

The government’s determination to aggressively curb immigration could also give Carney room to lower ambitious targets for home construction, which include plans to essentially double the pace of annual housing starts across the country.

“I’m not so sure we’ll need a half-million new homes every year as planned unless immigration gets back to 3% annual growth,” Guatieri said.

Toronto condo market continues to feel the pinch from lower immigration

One sector that’s already seeing sharp pain from lower immigration numbers is Toronto’s beleaguered condo market, which traditionally relied on a steady stream of international students and new immigrants to pay rents in the city and keep apartment units an attractive option for real estate investors.

TD Economics recently highlighted the growing headaches for investors caused by falling immigration numbers. “Population growth is slowing rapidly as the federal government’s tighter immigration plan is unfolding. Alongside rising supply, this is downwardly pressuring rents,” bank economist Rishi Sondhi said.

Paul Meredith of PMT Mortgage Corp. says unrealistic seller expectations are fueling Toronto’s condo slump, with some units sitting unsold for over six months. He warns many owners haven’t adjusted to today’s market reality. https://t.co/r1Hs4XIC7O

— Canadian Mortgage Professional Magazine (@CMPmagazine) May 13, 2025

“Souring rent growth is likely turning off investors, with industry data suggesting that the share of homes being bought up by these buyers is on the decline.”

If an economic downturn compels the central bank to begin cutting interest rates in the months ahead, that will result in lower variable mortgage rates – while reduced immigration is also likely to mean less competition in the housing market.

But Guatieri said the prospect of a deep crisis for Canada’s economy seems unlikely, particularly as immigration returns to more normal levels after the government’s recent cutbacks. “Those immigration curves, at least for this year, will be a weight on the rental market,” he said. “To some extent, it’ll be a bit of a challenge to clear up that glut of condos in the Toronto region.

“The good news there is at least for two years, the plan is to get back to more normal, healthy immigration and population growth in Canada, which is supportive for that market.”

That points to a positive long-term outlook for the Canadian economy and housing market, particularly as hopes grow in the wake of the 90-day tariff pause between China and the US that an easing of Donald Trump’s trade war with Canada could be on the way.

“Canada avoided several tariffs slammed on so many other countries,” Guatieri said, “so we’re already seeing signs of de-escalation. If that continues, this trade war will basically dissipate, and the storm will pass.”

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