Ottawa’s immigration cuts have eased pressure on housing and labour markets: TD Economic report

Supply and demand in action:

Ottawa hitting the brakes on population growth by drastically cutting incoming immigration has eased the pressure on social and economic infrastructure, according to a newly released report from TD Economics.

Last year, notes TD, government policymakers acknowledged that the influx of immigration was too high relative the ability of Canada’s social and economic infrastructure to cope. Unemployment rose more than a full percentage point between 2022-2024, while businesses struggled to keep up with a rapidly expanding supply of workers. Meanwhile, housing affordability was being stretched to its limits.

“In response, the government introduced an immigration plan to right-size non-permanent residents (NPRs) and permanent resident (PR) targets to allow for some ‘catch up’ in the needed infrastructure,” writes Beata Caranci, senior vice president and chief economist, and Marc Ercolao, economist.

“That policy shift is evident by a massive tapering in Canada’s population growth from a multi-decade high of 3.2% in Q2-2024 to just 0.9%.”

Now, the TD economists says, the question is whether the policy shift will achieve the intended outcomes for housing and the labour markets.

“The short answer is yes.”

How has Ottawa’s policy change affected the housing market?

Reducing the number of immigrants can relieve housing market pressures a few ways, they write.

In the rental market, drastically slower immigration bears out TD’s softer rent growth forecast of 3-3.5 per cent in 2026, which is roughly half the growth rate of 2024.

Lowering the cap on newcomers has also lowered condo demand for both homeownership and the secondary rental market. It has also caused downward pressure in asking rents across major cities, write Caranci and Ercolao.

The largest shifts were observed in B.C. and Ontario due to a higher proportion of temporary foreign workers and students. Those markets also have the highest supply of condo units where the secondary market was previously attractive to investors.

“Calculating the impact of immigration flows on home prices is a more nuanced exercise. For one, NPRs have limited participation in the ownership market. And when they do, NPRs usually opt for condominium units. So a reduction in NPR inflows carries the greatest weight on this segment of the market.”

Aside from NPRs, write the TD economists, the data shows that recent immigrants are slightly more active in homeownership during their initial years in Canada, with a preference for detached homes. By their fifth and sixth year, they note, immigrant ownership rates tend to converge toward 50/50 toward renting….

Source: Ottawa’s immigration cuts have eased pressure on housing and labour markets: TD Economic report