Canada is welcoming immigrants at its fastest rate since the Second World War, and it should have a significant impact on the labour market and housing demand, as well as projected interest rate hikes, according to a new CIBC report.
The Canadian government accepted 401,000 new immigrants during 2021, more than double the number of arrivals in 2020 (185,000). Moving forward, immigration targets for 2022 and 2023 are 411,000 and 421,000, respectively.
“Equally significant here is the evolving composition of those new immigrants,” said Benjamin Tal, CIBC’s deputy chief economist, in the report. “A closer look suggests that the employability of newcomers is on the rise, which should work to ease the pressure on the Bank of Canada to hike aggressively in 2022 and beyond.”
In general, new immigrant applications fall into three categories: economic (who qualify based on their education, language, and employment prospects), family sponsored, and resettled refugees or protected persons in Canada.
Labour shortages resulted in the Canadian government accepting 255,000 economic immigrants during 2021, representing nearly 65 per cent of the total. Previously, economic immigrants made up approximately 55 per cent. CIBC notes that an increase in the amount of skilled immigrants should translate to increased housing demand.
However, since the start of the pandemic only 30 per cent of immigrants have arrived from outside the country. The other 70 per cent of new permanent residents previously lived in Canada as temporary residents and had already secured housing.
“The dramatic increase in immigration had limited impact on housing demand since 70 per cent of those new immigrants already resided in Canada and therefore did not introduce new demand for housing,” Tal said.
CIBC expects housing demand to increase going forward, due to an increase in the number of young adult new immigrants, as well as stronger employment prospects for those who already have Canadian experience.
Approximately 42 per cent of last year’s new immigrants fell into the 15-29 age range, a significant increase from pre-pandemic levels (30 per cent). Meanwhile, new arrivals below age 14 and above age 60 saw a notable decline.
“Today, the assumption is that new immigrants purchase a home, on average, five or six years after arrival,” Tal said. “We suggest that given that many of them were already in Canada before the change in status, they might be in a position to purchase a home earlier.”
One wrinkle that could impact projected housing demand is the way household formation is calculated.
CIBC notes the Canadian government uses population growth to estimate the number of households created, although the same rate applies to both immigrants and non-immigrants, which could underestimate the actual figures.
“We suggest that housing demand is stronger than estimated by official figures due to the undercounting of household formation amongst new immigrants,” Tal said. “A pre-condition for any supply-led housing policy is a more accurate and realistic picture of actual demand.”