100,000 more new homes need to start construction in Canada annually to limit cost pressures from immigration

Feb 16 2023, 7:53 pm

With an incoming tidal volume of new immigrants due to the federal government’s heightened targets, Canada needs 100,000 more annual housing starts on average in 2023 and 2024 to offset the home price gains that can be expected when the level of supply increases do not match changes in demand.

Housing starts, the stage at which construction begins on a residential building, would need to increase by about 50% across the country relative to the current baseline, according to a new economic study by financial services firm Desjardins. This would be the highest level of housing starts in Canadian history, even though housing starts are already at near historic levels.

Higher proportions of these new housing starts would have to be located in Ontario and British Columbia, which continue to be the leading landing areas for immigrants, and where housing affordability issues are of course most pronounced. More immigrants have been coming to Ontario and BC than in the past.

“Regardless of where newcomers to Canada decide to settle, the home price impact of higher levels of immigration can be offset by an increase in the stock of housing,” reads the report.

“It would be required, in part, due to the lag between when new home construction begins and when those homes are listed for sale.”

Without this rally, analysts expect home prices will begin to rise quickly again in 2024, worsening housing affordability issues.

Analysts also stated a return to the average level of immigration experienced between 2018 and 2021 would have a “much more pronounced impact on keeping home prices lower and minimizing the erosion in affordability.” But it is widely understood that the federal government’s immigration targets are all about maintaining economic growth, filling an immense labour shortage, and preventing a financial gap from the direct result of Canada’s rapidly aging and retiring population.

“Economic immigrants are more likely to be employed and have higher earnings than native-born Canadians, thereby raising Canada’s economic potential. Turning them away because of an inability or unwillingness to build more housing would leave Canada worse off,” continues the report, noting that many newcomers are younger.

But the ability to ramp up housing starts is also hampered by the labour shortage, which has contributed to the escalation in construction costs, along with the other driving factors of current interest rates, mortgage rates, general inflation, and

Canada accepted 406,000 new immigrants in 2021, and a further 432,000 in 2022.

By 2025, Canada will welcome 500,000 new permanent residents per year — a staggering increase from the numbers achieved over the last few years, compared to pre-pandemic.

To reach the new elevated goal by 2025, the federal government will incrementally increase annual immigration targets over the next few years — 465,000 in 2023 and 485,000 in 2024.

Kenneth ChanKenneth Chan

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