Immigration and housing demand
With housing bottlenecks, rapid growth in international student numbers is unsustainable
Someone asked on Reddit:
How much is the Trudeau government bringing in a half million immigrants per year (minimum) gonna affect the rental market? It seems to be the subject that gets overlooked whenever this topic comes up. I'm not anti-immigration, but a slowdown for a couple of years for the housing market to catch up isn't the worst idea.
My thinking is that from the point of view of Metro Vancouver, as opposed to the federal government, high housing demand is basically a given - it's outside our control. In Vancouver we have high demand for housing colliding with a maddeningly slow approval process (the slow approval process is what the provincial government is aiming to fix). No matter what happens with national immigration levels, I think we'll continue to have high demand in Vancouver. It's a great place to live with lots of jobs; people move here from elsewhere in Canada; there's Canadian citizens living abroad, like software developers working in the US, who will return in the future.
That said, it's clearly the opinion of economists at the major banks (example) that current levels of population growth - particularly for temporary residents - should be reduced, based on their assessment of the tradeoff between labour shortages and housing shortages.
The immigration targets (new permanent residents) are about half a million (465,000 in 2023, 485,000 in 2024, 500,000 in 2025, staying at 500,000 after that). Annual housing starts are about 235,000, and average household size is 2.5 people per household. So that seems reasonably balanced.
The big issue is temporary residents, especially international students, who also need a place to live. The fact that young people want to study in Canada, and potentially stay here to live and work, is a good thing: we need more young people to offset the baby boomers who have been retiring from the work force. But we’re also in the middle of a terrible housing shortage.
There's a particular issue with provincial post-secondary institutions (especially in Ontario) exploiting international students and raising the numbers to unsustainable levels. Apparently in 2022 Doug Ford decided it would be a good idea to double the number of international students studying at Ontario colleges (like throwing gasoline on a fire). Alex Usher describes how the federal government is trying to figure out how to impose a cap at the federal level; he thinks this isn't a great idea, a better approach would be to negotiate a cap with Ontario and then have Ontario administer it.
Growth in per-capita demand
Note that even with lower population growth, we still need to build a lot more housing! Covid and the sudden massive surge in remote work mean that a lot of people need more space at home, and this isn't going to reverse itself. So now we have a massive shortage of residential space (and a surplus of office space). Other countries are seeing the same thing:
US: "In an interesting new paper, John Mondragon and Johannes Wieland argue that 'the shift to remote work explains over one half of the 23.8 percent national house price increase over this period.'"
UK: "Research published by the Bank of England suggests that shifts in people's wants — such as the desire for a home office, or a house rather than a flat — explained half of the growth in British house prices during the pandemic."
Australia: "In many countries, including Australia, the average household size has shrunk, suggesting that people are less willing to house-share."
New Zealand basically closed its borders when Covid hit, and house prices still went through the roof.
Mike Moffatt on what should be done
Moffatt is deeply worried about what happens in summer 2024, when another cohort of students arrives. A Twitter thread from November 2023, after the fall economic update:
First off, I will give myself the same restrictions (real and self-imposed) that the federal government had yesterday. Specifically:
Needs to be things in federal jurisdiction
Has little-to-no cost until 2025 or later
With those constraints in mind, here goes...
The biggest immediate problem we have is that our housing stock is growing by 250K a year... enough to house 500-600K people.
But our population is growing by 1M or more.
This cannot be sustained.
The bulk of that population growth is coming through non-permanent resident routes: international students and temporary foreign workers.
Step one is to substantially reduce the number of visas for both international students and TFWs, *coupled* with a coordinated plan to building student housing and workforce housing, allowing Canada to steadily bring those numbers back up over time.
Next summer is going to be an absolute nightmare. Neither the federal government or provinces are doing anything meaningful on student enrollment or student housing.
Demand for rental space is going way up, without the increase in capacity.
And this isn't just breaking the rental market... we continue to see investors buy up single-family homes to convert into student rentals, to help meet this demand.
Potential first-time homebuyers can't compete with that.
Next, there are a number of tax reforms that feds could make which have low up-front costs but would get shovels in the ground today. Accelerated capital cost provisions are the obvious ones, but there's other things the feds could do here.
Next up: A big increase in low-rate, long-term construction loans for housing. At, say, 75 basis points above government borrowing rates. This provides lower-cost, lower-rollover risk capital for builders, while at the same time *makes* money for the government.
Next: An innovation strategy. The federal government has an innovation strategy for everything from lentils to aerospace, but none for housing construction. We need the sector to be far more productive if it is going to achieve the necessary scale.
Loads of other policy ideas out there. @tylermeredith's acquisition strategy has no net cost to the federal government and is worth looking at.
But the federal government doesn't have much time. The next big population increase is coming around Canada Day 2024, and they're sitting on the sidelines, not wanting to slow growth, but also not creating the conditions to build the housing to support that growth.
The path forward is straight-forward:
Immediately lower demand by limiting growth in non-permanent residents
Scare off the speculators and investors buying up single-family homes
Create the conditions for robust supply growth to keep up with demand
Starting January 1, the number of hours per week that an international student can work off-campus will drop from 40 back to 20 (as recommended by Mike Moffatt). CTV News. Links to a report from four senators in September with recommendations for reform.
[Update: on December 7, the 40-hour limit was extended out to April 30, presumably to line up with the school year. The federal government did increase the amount you need to have to show you can initially support yourself when applying for a study permit (from $10,000 to about $20,000, now rising with inflation), which will help to reduce demand. Global News.]
TD: Balancing Canada’s Pop in Population, July 2023.
RBC: New 2024-2026 federal immigration targets flat amid policy tweaks, November 2023. “The pause in targeted immigration levels is appropriate given housing challenges and eroding public support for higher levels of immigration.”
David Green: No, immigration is not some magic pill for saving the economy, December 2022.
Mike Veall: Amid Canada’s housing crisis, immigration needs to be slower, more focused, August 2023.
Frances Woolley: Stop seeing immigration as a get-rich-quick scheme for Canada’s economy, September 2023. Green, Veall, and Woolley are all former presidents of the Canadian Economics Association.
Joseph Heath: Canadian exceptionalism, July 2017. Discusses Canada’s successful record of integrating newcomers, not based on shared values but on shared principles. We have a common set of institutions which are open to everyone regardless of their cultural background. But people still need a place to live.
Mike Moffatt and Hannah Rasmussen: Reform immigration with a focus on tradable sectors, October 2016. A tradable sector scales up, allowing it to grow arbitrarily large with no downward pressure on wages.