Central bank says newcomers may be adding to housing costs and labour market challenges
The Bank of Canada has disputed the government’s rosy outlook on immigration, suggesting that the influx of newcomers may be contributing to economic pressures rather than providing an immediate boost.
In its latest monetary policy report, the central bank raised concerns about the impact of rapid population growth on housing affordability and labour market integration.
The central bank said that while immigration has fuelled demand for housing, leading to increased rents and home prices, the benefits in terms of labour supply have been more gradual.
“Strong population growth in recent years has boosted demand for housing,” the report stated. “This is adding to existing pressures on house prices and rents. The increase in housing demand from newcomers is being felt across all types of housing, but the largest initial impact tends to be in rental markets. This is because most newcomers start out as renters.”
The Bank highlighted challenges faced by many immigrants in transitioning to the Canadian labour market, including difficulties in recognizing foreign credentials and finding employment aligned with their skills. This, according to the report, has contributed to inflationary pressures in certain sectors.
The report also highlights the difficulties immigrants face in securing employment that matches their skills.
“[Many immigrants] face significant challenges integrating into the Canadian labour market, the BoC researchers wrote. “Difficulty getting foreign credentials and experience recognized in Canada also often results in newcomers taking jobs where skills do not match those required for the position. This potential mismatch also weighs on productivity.”
The central bank explained that the labour market might not immediately benefit from the increase in the working-age population due to these challenges.
“The boost to labour supply due to the arrival of newcomers could be initially somewhat lower than what would be expected given the increase in the working age population,” the report said.
Immigrants may contribute more to demand than to supply in their initial years in Canada, adding to inflationary pressures, the BoC suggested.
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The Bank’s analysis stated that the government will slow down immigration after allowing 2.3 million foreigners into Canada in 2023, including 1,040,985 foreign students, 766,250 migrant workers, and 471,550 landed immigrants.
“Overall, the consumption and employment profiles of newcomers suggest they contribute slightly more to demand than to supply in the first few years after they arrive in Canada,” said Monetary Policy. “This unevenness contributes to inflationary pressures in some sectors.”
These findings stand in contrast to the federal government's repeated claims about the immediate economic benefits of immigration.
Former Immigration Minister Sean Fraser told the Commons immigration committee in 2022, "If we want to maximize our economic potential as a country to pay for all the things we enjoy, we need to bring more people into our workforce. Immigration is going to play a major role."
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