The Bank of Canada says record levels of immigration are driving up the cost of housing and that recent government efforts to reduce the number of non-permanent residents and encourage housing construction will help reduce housing costs, but “only gradually “.
“In the short term, any increase in population, particularly in a supply-constrained environment, will put upward pressure on prices,” said Carolyn Rogers, senior deputy governor of the Bank of Canada.
“What has happened in the Canadian economy over the last year is that we have experienced a large surge in population growth due to immigration. This happened at a time when supply was limited. You can see this most clearly in the housing sector, particularly in rents. “.
Rogers joined Bank of Canada Governor Tiff Macklem at a news conference Wednesday to release the bank’s quarterly report on the economy, the Monetary Policy Report.
The report states that mortgage interest costs are increasing by almost 30 percent per year, while rental costs are increasing by about 8 percent per year.
The report also says that while multiple factors contribute to the rising cost of housing – higher insurance and maintenance costs, a shortage of construction workers, and burdensome zoning and construction regulations, clearance – immigration remains a key source of pressure.
“A larger increase in the number of new arrivals than in the past adds pressure to the structural constraint on housing supply,” the report said. “This helped push the overall housing vacancy rate to a record high, which supported property prices and led to higher rents.”
In the fall of 2022, the Liberal government announced that it was increasing the annual target for permanent residents from 405,000 in 2021 to 465,000 in 2022, before stabilizing at 500,000 in 2024, almost double the 260,411 permanent residents who arrived in 2014.
But new permanent residents are only part of the immigration story.
Statistics Canada reported an increase in the total population of 1,158,705 permanent and non-permanent residents as of July 1, 2023, an increase of 2.9% compared to July 1, 2022 and the highest rate of population growth recorded in a 12 month period since 1957.
The agency said 98 percent of that increase was due to immigration, while the rest was due to natural increase – the difference between births and deaths.
Statistics Canada said that at the end of 2023, there were 2,511,437 non-permanent residents in the country – a class that includes international students and temporary foreign workers – up from 1,305,206 in fall 2021.
Real estate inflation will only be resolved gradually
Pressure on the rental market, housing experts sayhas come largely from non-permanent residents, as these immigrants almost exclusively rent rather than buy.
In 2011, the number of international students in the country was just under 240,000. Late last year, Immigration Minister Marc Miller said Canada was on track to welcome up to 900,000 international students in 2023.
To remedy this source of pressure on the real estate market, the Liberal government announced this week that it cap the number of student permits for the next two years.
The government said it would only approve 360,000 undergraduate study permits for 2024, a 35% reduction from 2023.
To address other housing pressures, the federal government rolled out the Housing Acceleration Fund and allocated $4 billion through 2026-27 to encourage more housing construction in cities. The fund’s goal is to build an additional 100,000 units across the country by streamlining land use planning and development approvals.
“Ongoing structural supply-side challenges and strong underlying demand from population growth are likely to continue to put pressure on house and rent prices,” the Monetary Policy Report said.
“Although recent government measures should help to alleviate some of these constraints, the imbalances should only be resolved gradually.”
Widespread inflationary pressures
Macklem said that despite mortgage interest rates rising by almost 30 percent and rents by 8 percent, persistent inflation is preventing him from reducing interest rates in the short term.
“Housing is not the only source of inflationary pressures. Food price inflation was extremely high, around 10 percent. It has come down. But at 5 percent, it remains too high,” he said. declared Wednesday.
“If you look at the share of components (of the consumer price index) that are increasing by more than 3 percent, that’s a little over 50 percent. There are still underlying inflationary pressures on many goods and services.”
When Statistics Canada released Consumer Price Index (CPI) figures in December, it reported that headline inflation was 3.4 percent, above its target range of one to three per cent. hundred.
According to Statistics Canada, other main factors contributing to inflation are the cost of food (up 5 percent), food purchased from restaurants (up 5.6 percent), auto insurance (up 5.9 percent) and alcohol and tobacco (up 4.3 percent). percent).
“Inflation is still quite broad-based and that is why we are concerned about the persistence of underlying inflation, and that is why we are maintaining our policy rate today at 5 percent,” Macklem said.