FINLAYSON: Trudeau’s immigration policy supercharging housing demand

2024/07/04 Leave a comment

Yet more commentary on the link between immigration and housing, and the time lags involved in expanding the latter:

According to a recent Statistics Canada report, Canada’s population has just hit the level it was previously expected to reach in 2028. That startling finding underscores the extraordinary growth of the country’s population since the pandemic, driven by record inflows of permanent and “temporary” immigrants.

A rapidly expanding population can bring benefits, notably by stimulating overall economic activity and providing additional workers. But it’s not an alloyed good. The number of Canadian residents is increasing faster than economic output (gross domestic product), which has translated into an unprecedented series of per-person Gross Domestic Product declines over the last several quarters. Productivity is stagnant as newcomers struggle to find their way in the economy and job market. In addition, a significant share of new immigrants don’t seek or obtain employment, dampening immigration’s contribution to the growth of economic output.

Meanwhile, unusually brisk population growth is putting considerable strain on public services and infrastructure, in part because the federal government did essentially nothing to plan or prepare for the dramatic surge in immigration that its own policies sanctioned. The “downstream” challenge of managing the pressures flowing from turbo-charged immigration falls mainly to provinces and municipalities, not far away Ottawa.

All of this has implications for the hottest issue in Canadian politics today — housing affordability and supply. Like the rest of us, newcomers need a place to live. Immigration is the predominant source of incremental housing demand in much of the country, particularly big cities. Demand for housing also comes from the existing Canadian population, as young adults establish separate households, marriages dissolve, and people move to other communities or neighbourhoods for work, education or retirement.

Unfortunately, homebuilding has been running far behind what’s necessary to accommodate immigration, let alone meet the demand from household formation among current residents. In 1972, when the population stood at 22 million, roughly 220,000 new homes were added to the Canadian housing stock. In 2023, with a population of 40 million, housing starts were only a little higher than half a century ago.

This brings us to the Trudeau government’s multi-faceted housing plan, rolled out over the past year and finalized with great fanfare in the 2024 federal budget. The government has pledged to somehow build 3.9 million new homes by 2031 — just seven years from now. This is equivalent to 550,000 housing starts per year. It’s an aspirational target, but also a patently unrealistic one.

The federal government has little control over what happens in the towns, cities and provinces where most of the policy and regulatory decisions affecting homebuilding and community development are made. Moreover, the Canadian construction sector doesn’t have the spare human resources or organizational capacity to quickly double housing starts.

Even today, the construction sector’s “job vacancy rate” is higher than the all-industry average.

The year 2021 marked a record for Canadian housing starts at 270,000. Starts fell over 2022-23, amid higher interest rates.

This year, RBC Economics projects housing starts of 251,000, rising to 273,000 in 2025. To put it mildly, these figures are inconsistent with Ottawa’s ambitious plan to deliver 550,000 new homes per year.

We’ll likely see more and faster homebuilding over the next few years, as governments at all levels direct more money and

political attention to housing. But a doubling of housing starts simply won’t occur within the Trudeau government’s politically manufactured timeline. One thing seems certain — Canada’s housing “crisis” will continue to fester.

Jock Finlayson is a senior fellow at the Fraser Institute

Source: FINLAYSON: Trudeau’s immigration policy supercharging housing demand

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Immigration is not a cure-all for Canada’s economic woes

2020/10/14 Leave a comment

A useful and needed reminder that Canada has been relying too much on immigration for overall economic growth rather than addressing some of the fundamental challenges related to productivity:

Jock Finlayson is the executive vice-president and chief policy officer of the Business Council of British Columbia. David Williams, DPhil, is the council’s vice-president of policy.

Immigration inflows to Canada have fallen off a cliff since the COVID-19 pandemic. In the second quarter of 2020, permanent resident arrivals were down by two-thirds from a year ago. Temporary work permits issued to foreign workers were down by half. And permits for international students were about 80-per-cent lower.

By contrast, prior to the pandemic, net temporary immigration was a record 191,000 and permanent immigration reached 341,000 last year – the highest since 1911-13. As a result, Canada’s population increased by a record 550,000 people last year, with much of that growth concentrated in the gateway metropolitan areas of Toronto, Vancouver and Montreal.

The immigration slump has set off alarm bells in some quarters. The concern is that without a prompt return to turbocharged immigration levels, Canada’s economy is in jeopardy. In our view, these concerns are exaggerated and overlook the humble arithmetic of economic growth.

Growth in gross domestic product (GDP) comes from two sources: increases in “labour inputs” (more workers and/or more hours of work); and increases in “labour productivity” (more GDP per employee or per hour of work) because of investments in capital, skills, technologies and economies of scale. Canadian policy discussions overwhelmingly focus on boosting labour inputs, while paying scant attention to the drivers of productivity. This is a remarkably unbalanced approach.

Canada’s economy stumbled into 2020 with a national growth strategy that was yielding low unemployment – and flushed gateway city real estate markets – but little or no gains in GDP per capita, productivity and real wages. Canada could scarcely manage topline GDP growth of 2 per cent without overheating and prompting higher interest rates from the Bank of Canada. That’s hardly impressive for an economy operating near full employment.

In the five years to 2019, fully four-fifths of Canada’s GDP growth was because of increases in aggregate working hours as the labour force steadily expanded. During the same period, labour productivity – which largely determines average real wages and living standards in the long run – made its smallest contribution to GDP growth since the 1980s. On a per worker basis, business investment was weaker last year than in 2008. Putting all the pieces together, GDP per capita inched ahead by a paltry 0.3 per cent per annum over the five years to 2019.

In other words, Canada’s economy was growing mostly because it was adding more people (especially in the big cities). But owing to weak investment and feeble productivity growth, the economy wasn’t getting much “better” in terms of making the average Canadian more prosperous.

There are benefits from immigration – a larger pool of workers and skills, more domestic customers and densification of the big cities. But research from leading Canadian economists generally finds that immigration numbers have an overall neutral effect on real wages, employment rates, labour productivity and GDP per capita. In addition, immigration has only a small impact on the age structure of the population. That’s because annual immigration flows are dwarfed by the existing population, and also because newcomers age along with everyone else.

Canada is on a long road to recovery from the COVID-19 recession. In the coming years, policy makers should focus on spurring labour demand, restoring full employment and improving competitiveness. This will require creating better conditions for investment and technology adoption, for Canadian companies to scale up and innovate, and for the work force to upskill and reskill in the face of digital transformation and automation trends. These are the surest paths to economic growth and prosperity – on a per capita basis, for both urban and regional communities, and over the short and the long term.

Source: https://www.theglobeandmail.com/business/commentary/article-immigration-is-not-a-cure-all-for-canadas-economic-woes/

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