Reduced immigration will help, but won't close the housing gap as much as Ottawa projects
The federal government’s revised immigration targets may not ease Canada’s housing shortage as much as officials project, the Parliamentary Budget Officer (PBO) said.
PBO’s new report showed that while cutting immigration will reduce housing demand, the government is overstating the long-term impact of the policy shift.
In October, the federal government announced plans to lower the number of permanent residents entering Canada over the next three years. The move was aimed at alleviating the nation’s housing shortage by reducing population growth and, consequently, the demand for housing.
Under the revised immigration plan, Canada’s population is expected to decline by 0.2% in 2025 and 2026, marking the first population drop in decades. The government estimated that the reduced targets will decrease housing demand by 670,000 units by 2027.
The PBO’s analysis, however, suggested that these reductions will have a smaller impact than the government anticipates.
The office projected that the housing gap will shrink by 534,000 units, or 45%, by 2030 if the government’s population forecasts hold true. This falls short of the government’s more optimistic timeline and housing demand reduction projections.
The PBO highlighted uncertainties in the government’s demographic assumptions, particularly around non-permanent residents.
One key issue is the assumption that many non-permanent residents, whose permits or visas will expire, will leave Canada. The PBO called this an "upper-bound estimate" and cautioned that household formation and housing demand may not decline as sharply as projected.
"Both our estimated reduction in household formation and the housing gap under the (immigration levels plan) are uncertain and likely represent upper-bound estimates," the PBO said.
The PBO also estimated Canada will need to build 1.2 million additional homes by 2030 to close the housing gap entirely. The government’s new projections suggested a faster reduction in housing demand, but the PBO attributed this discrepancy to differing assumptions about age, region, and household composition among non-permanent residents.
Read more: Is US immigration to Canada set to surge after Trump's victory?
"This difference likely reflects several factors, such as the assumed age, region and household structure of the (non-permanent resident) outflows projected under the (immigration levels plan), as well as the time horizon and counterfactual population projection," the PBO wrote.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
