Canada's Immigration Policy Shift – Balancing Economic Growth and Housing Affordability

The decision by Canada's federal government to significantly reduce immigration levels marks a pivotal shift in its population policy, with profound implications for economic growth and the housing market.

The federal government's 2025–2027 Immigration Levels Plan outlines a reduction in permanent resident admissions from the previously planned 500,000 per year to 395,000 in 2025, 380,000 in 2026, and 365,000 in 2027.

Economic Implications

This policy change aims to address mounting concerns over housing shortages and strained social services, issues exacerbated by rapid population growth in recent years. By curbing the influx of new residents, the government seeks to alleviate pressure on the housing market, potentially stabilizing soaring property prices and rents that have rendered housing unaffordable for many Canadians.

However, the economic ramifications of this policy are complex. A slowdown in population growth could dampen aggregate consumer spending and constrain labour supply, posing challenges to sectors reliant on a steady influx of immigrants.

Industry groups, including the Canadian Chamber of Commerce, have expressed concerns that reduced immigration may exacerbate labour shortages, particularly in industries such as healthcare and construction, potentially impeding economic growth.

Conversely, the policy may incentivize businesses to invest in productivity-enhancing technologies and training for domestic workers, offsetting some negative impacts on the labour market.

The aim is to decelerate population growth to provide a much-needed respite for the housing sector, allowing supply to catch up with demand and improving rental affordability.

Affordability is achieved by lowering rents, which should be of prime concern for property investors who represent a high share of owners in major Canadian cities.

Provincial Perspectives

The impact of these policy changes will vary across provinces, with British Columbia, Alberta, and Ontario experiencing distinct effects.

British Columbia

British Columbia, with a high proportion of temporary residents, is likely to experience a very high impact from the reduction in immigration. The province's share of temporary residents stood at 8.9% at the beginning of 2024, significantly above the national target of 5%.

A decrease in the number of international students and temporary foreign workers is expected to reduce demand for rental housing, cooling interest from buy-to-rent investments, and potentially softening apartment price growth.

This adjustment may alleviate some of the housing affordability issues that have plagued the province, particularly in urban centers like Vancouver.

Ontario

Ontario, similar to British Columbia, has a high proportion of temporary residents, accounting for 7.8% of its population in March 2024. The anticipated reduction in immigration is expected to decrease demand in the housing market, particularly in rental accommodations, which could lead to a cooling of rental rates.

The Toronto condominium apartment market looks particularly exposed. If rents drop and mortgages are renewed at higher rates in 2025 and 2026, more buy-to-rent investors might find their properties are unsustainable cash flow negative with a dim prospect for a turnaround. They could then list their properties for sale, adding more supply to a market already struggling to absorb current levels of supply.

Toronto Condo Apartment Months of Investory Supply

Alberta

With a smaller proportion of temporary residents, Alberta may experience a less pronounced impact from the federal policy changes.

While Alberta is well below the 5% federal temporary resident target, the province will likely share in shouldering the population growth reduction, but with little direct impact on local housing markets.

However, the province has benefited from inter-provincial migration, attracting individuals from higher-cost regions such as British Columbia and Ontario.

If housing markets in those provinces soften, the incentive for people to move to Alberta might become less attractive, and this interprovincial migration may diminish. Even if the housing affordability narrative gains traction in the more expensive provinces, it could be enough to convince residents to stay. So indirectly, better housing affordability in BC and Ontario could cool the Alberta property market.

Conclusion

In summary, while Canada's new population policy seeks to address pressing issues in the housing market and social services, it introduces a delicate balancing act. The challenge lies in mitigating potential economic drawbacks, such as labour shortages and reduced consumer spending, while striving to achieve sustainable growth and improved living standards for Canadians. The varied impacts across provinces underscore the importance of tailored regional strategies to effectively navigate the evolving demographic landscape.