Photo: Billy Wilson/Flickr
Immigration’s support for the Canadian housing market has been under-measured as newcomers to Canada buffer the threat of overbuilding.
That’s according to a new report by CIBC World Markets economists Benjamin Tal and Nick Exarhos, who say the rising share of young immigrants has lifted demand for housing and official population projections have understated the actual number of non-permanent residents by close to 100,000.
“Ask any real estate developer in any of Canada’s major cities about the risk of overbuilding, and the first line of defense would be immigration and its critical role in supporting demand,” Tal and Exarhos said. “It turns out that at least for now, this claim is more valid than widely believed.”
New immigrants account for 70 per cent of the increase in Canada’s population, they said, with half being between the ages of 25 and 44.
“Healthier demographics are benefitting trends in household formation,” Tal said. “Despite some concerns of overbuilding in the current housing boom, the ratio of housing starts to household formation is not far from its long-run average of 1.03, indicating no signs of froth.”
While economists have pointed to the “red hot” markets in Vancouver, Calgary and Toronto, the latest numbers on building permits issued in Canada are still recovering from a hit in August, and national housing starts came in below expectations for October, easing economists’ concerns about overbuilding.
While housing starts continue to show upward momentum only in Calgary, Toronto has cooled off and the trend in Vancouver has been “broadly flat” for the past four years, the report said.
“But because those three cities take in roughly half of all new immigrants, they are also benefiting disproportionately from the demographic lift new Canadians are providing” Tal said.
An extra cushion to the housing market can also be found in students, temporary workers and humanitarian refugees in the country, Tal and Exarhos added, but there’s a “huge gap” in the census data used to measure the group.
“This has important implications regarding the understanding of the pace of growth in household formation in Canada” Tal said. “The gap is increasingly becoming more relevant for housing demand since a growing proportion of non-permanent residents come from workers and students with a relatively higher propensity to rent.”
Follow Kat Sieniuc on Twitter: @katsieniuc