In late 2022, our government announced some very aggressive immigration targets, starting at 465,000 new permanent residents in 2023 and reaching half a million by 2025.
Last week, our Prime Minister suddenly hit the brakes and surprised us with a sharp cut on immigration.
The permanent resident target for 2025 will be reduced by 20% to only 395,000.
Population growth has always been a backbone to support our housing market.
What kind of impact would this sharp cut on immigration bring to our already struggling housing market?
Let’s talk about 3 notable shifts in our country ever since the government set ambitious immigration targets.
#1 Housing Crisis
We need to build more homes faster to satisfy the housing demand from population growth.
By now, you are probably sick of hearing that.
Besides, who would worry about a supply shortage a few years down the road when we are in a housing market downturn right now?
Most people are short sighted.
What we can see at the moment is plenty of supply.
And do we still have a supply issue now that the government is cutting down on immigration?
We’ll get to that in a bit.
Let’s finish our discussion on the notable shifts from aggressive immigration, I’m sure you notice these ones.
#2 Crime Rate
In Toronto, crime rates have risen sharply in 2024.
Car thefts are particularly shocking.
A car is reported stolen every 40 minutes on average, that’s crazy.
On top of that, assaults rose by 8% and robberies increased by 21% in 2024 compared to the previous year.
Now I’m not saying that all these crimes are caused by newcomers.
Interest rates are high, the economy is bad, it’s getting harder and harder to find jobs.
Newcomes are typically the first ones to take the hit when the job market gets tough.
Here’s the thing.
We definitely need to be very selective on the qualifications of the newcomers, focus on quality, not quantity.
#3 Medical Care
As of 2024, approximately 6.5 million Canadians, that’s 22% of adults, do not have a family doctor.
The extensive delays in surgeries and hospital care are alarming.
So I generally see a cut on immigration as a good thing because our infrastructure is simply not ready for sudden explosive growth.
We need to add quality and not just quantity.
Well, the government is finally making a little bit more sense.
While they are reducing immigration overall, they are increasing the proportion focused on economic immigration, which means admitting individuals who can actively contribute to our economy.
Over 40% of economic immigrants are expected to come from temporary residents who are already in Canada.
That makes sense, if they are already here and we know they are good, then make them permanent residents.
In terms of temporary residents, the government intends to reduce temporary resident levels as a proportion of Canada’s overall population from 7% to 5% by the end of 2026.
This means we are going to see a large reduction in both study and work permits.
And we are going to see an immediate hit on the rental market because roughly 50% of renters are work and study permit holders.
But at the same time, the hit would be offset by a significant drop in condo completions in 2025 and 2026.
Next year, we are expected to see 25% fewer completions than this year.
In 2026, the number of completions will only be half of that in 2024.
So yes, there will be a decrease in rental demand, but there will also be a decrease in supply.
Overall, I think we will see a stable rental market, with rents staying more or less flat.
As for the resale market, it is unlikely that we will see any immediate impact because the majority of buyers are not work and study permit holders anyway.
What about longer term impacts?
Canada has an average of around 200,000 to 250,000 new housing completions per year.
In order to meet the previous aggressive population growth target, we need to double our construction rate and aim to build around 500,000 new units per year over the next decade.
It was an impossible target to meet.
There’s no way we can build twice as fast.
The government is now saying that with the reduction in immigration targets, we can reduce the housing supply gap by approximately 670,000 units over the next few years.
That means we should have enough supply even if we build at our average construction rate.
Here’s the thing.
Housing starts are expected to drop significantly because developers have not been able to sell their projects to investors in the high interest rate environment.
They can’t sell, they can’t build.
So again, yes, demand is decreasing, but supply is also decreasing.
The government is trying to turn a disastrous situation into a more controllable situation.
With this immigration cut, I don’t think we are going to see a very hot housing market, but I don’t think we are going to see a further crash either.
We are going to see a slow steady recovery driven by end users.
Just when I’m finishing up on this video, I heard the news that there may be a potential tax cut to encourage developers to build more homes and that could have a big impact on the housing market.
We are going to talk about that next week.
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