What would happen to Canada’s housing market if immigration to Canada was substantially reduced or even cut to zero? It’s a crucial question for the public, and for real-estate developers who start new construction projects on the basis of predictions of future sales.
Surprisingly, however, the answers are all over the map.
Some specialists suggest virtually nothing would happen to Canadian housing prices if immigration slowed or ended. Others say the impact would be lower prices and hard times for the powerful real-estate industry.
While there are no immediate signs immigration levels will be reduced — Prime Minister Justin Trudeau has increased the immigration rate by more than 30 per cent, to almost 350,000 newcomers a year — the issue is central to the dreams and anxieties of Canadian residents who either own homes or want to imagine the possibility.
Two Ontario real-estate specialists recently wrote in the Financial Post that, based on studies, the “overall impact of immigration on housing markets is modest at best in most cases.”
The most startling research spotlighted by Murtaza Haider, of Ryerson University, and Stephen Moranis, a Toronto real-estate insider, maintained that immigration has virtually no impact on overall Canadian housing prices.
The authors of that contentious study, Ahter Akbari and Yigit Aydede of Saint Mary’s University in Halifax, claimed immigration adds an insignificant $1 to every $1,000 people in Canada spend on housing.
Could that be true?
UBC geography professor emeritus David Ley, whose findings differ from the 2012 paper by the Saint Mary’s profs, said in an interview their study looks at the period from 1996 to 2006 and doesn’t focus on urban regions, which his analyses do. Ley has consistently found a close correlation between strong immigration and high housing prices in global cities.
In that way the Saint Mary’s paper sidesteps an increasingly plain-to-see phenomenon: Housing prices vary according to where immigrants choose to live. And for the most part they stream into major cities, especially sky-high Toronto and Vancouver.
Indeed, the authors of the Financial Post article that cites the Saint Mary’s study apparently contradict themselves at the end of their piece, after repeating the impact of immigration is “modest at best” on housing.
“The more important realization,” Haider and Moranis say in their last sentence, “is that an absence of immigration would result in a declining population and aging of the workforce, which could have a much larger negative impact on Canadian housing markets.”
So, which is it? Immigration has almost no influence on housing? Or the population growth it brings has a tremendous impact?
Simon Fraser University’s Josh Gordon, a specialist in public policy, says it’s crucial to follow through on the “counter-factual” question, to imagine a scenario not currently in the cards: What would happen to housing prices if immigration levels reduced to zero?
The real-estate industry, Gordon said, repeatedly says it must build more housing faster because the Canadian population is growing rapidly, predominantly because of immigration.
The development industry’s repeated warnings, Gordon said, that Metro Vancouver and Toronto property must be rezoned at higher density and that rents will continue to rise would be thrown into disarray with the ending of immigration.
“What’s revealing is that when certain members of the real-estate industry try to generate a fear-of-missing-out mentality (FOMO), as well as the expectation that prices will rise over time, their typical move is to emphasize how many people will be arriving on a yearly basis and how large the population will eventually be,” Gordon said.
“The actions of those organizations belie the idea that immigration is not likely to have much impact on prices.”
There is evidence housing prices would dramatically adjust if immigration stopped.
After all, the populations of Metro Vancouver and Toronto experience net growth of about one per cent a year, almost entirely from foreign-born newcomers, who need places to live. That does not include the high portion the two cities take in of the roughly one million international students and temporary visa workers who are now in Canada at any one time.
And a recent study by Statistics Canada researchers found the detached houses bought by recent immigrants to Metro Vancouver are, on average, valued $824,000 higher than such homes owned by people born in Canada. In Toronto the cost of recent immigrants’ homes was about $50,000 higher than that of the domestic born.
UBC geographer Daniel Hiebert, in addition, showed in a peer-reviewed study that recent immigrants, especially those from China, show statistically greater determination than Canadian-born citizens to buy housing in Canada’s three major cities. “First and foremost,” Hiebert says, “immigration policy is, essentially, also a form of housing policy.”
The Urban Development Institute, which represents property developers, makes no bones about how housing supply must be expanded to support immigration.
“Over the next 25 years, our province is expected to grow by more than 1.4 million people, partly as a result of the federal government’s plan to raise immigration 13 per cent by 2020,” UDI president Anne McMullin recently wrote. “That means we must work together to create new homes if we want our children and grandchildren to have a future in B.C.”
A related June study by Gordon found a near-perfect correlation between housing unaffordability and foreign ownership in certain Metro Vancouver municipalities. Gordon discovered, for instance, that Vancouver, Richmond and West Vancouver are not only the most unaffordable municipalities, they are the one most attracting millionaire migrants and their wealth.
There is a complicating factor, however, as there often is when trying to understand the mass global movement of people and money.
Gordon emphasizes that immigration levels and foreign ownership, which he defines as “housing owned primarily on the basis of foreign income or wealth,” are related. But they’re different, too.
“There is some overlap to the extent that immigration, as it happens in Canada, involves many people arriving with significant amounts of wealth,” Gordon said. “But debates about immigration are largely distinct, though not entirely, from debates around foreign ownership, even while certain people have tried to conflate the two.“
How do the foreign-buyers taxes in B.C. and Ontario, as well as B.C.’s speculation tax, fit into the discussion of housing prices? Those measures are focused on foreign ownership, not immigration levels, Gordon said.
“The point of the measures in relationship to foreign ownership is to discourage the de-coupling of the housing market from the labour market, to discourage the use of large amounts of foreign capital to purchase property in Canada,” said Gordon.
“Measures around foreign ownership are about levelling the playing field for local working people. Measures around immigration are different. The irony is that measures to limit or curtail foreign ownership may in fact be beneficial for many new immigrants, because new immigrants who do not arrive with vast amounts of wealth are doubly disadvantaged in the housing market.”
It can take a while to get one’s head around the global forces running through Canadian housing.
But no matter which way you look at the impact of large-scale immigration, and foreign capital, on key sectors of Canada’s vigorous housing market, it’s undeniable they’re profoundly connected — and that decisions made about immigration will indeed always be a form of housing policy.
