To counteract the anticipated price increases resulting from the Canadian federal government's higher immigration targets, housing starts across the country must grow by nearly 50%. Canada aims to welcome around 500K new permanent residents annually in 2023, 2024, and 2025, which will naturally lead to increased sales activity in the housing market.
It is estimated that to balance the associated price increases, housing starts must immediately rise by nearly 50% nationally, compared to their predicted baseline of around 210K, and maintain this higher level until 2024. This translates to an additional 100K housing starts per year in 2023 and 2024, marking the highest level in Canadian history.
If most newcomers settle in Ontario and British Columbia, as has been the trend, housing prices will increase, and affordability will deteriorate nationwide. However, if more immigrants move to the Prairies, which have a history of successfully integrating immigrants and offering more affordable housing, the pressure on home prices and affordability would be alleviated in strained areas. The Prairies' economies are also expected to be the best-performing in 2023, with increased distribution supporting higher national economic growth.
If more immigrants choose to reside in the Prairies, as seen in 2016, the resulting decrease in national home prices would more than counterbalance the increased population's upward effect.
The impact of immigration on housing prices can be mitigated by boosting the housing supply, specifically through the mentioned 50% increase in housing starts. Desjardins' projection is more ambitious than the federal government's plans outlined in Budget 2022 but falls short of the Ontario government's goal of constructing 1.5 million homes by 2031.
If Ontario achieves 150K housing starts annually in 2023 and 2024, the average home price in Canada would experience a significant offsetting impact, according to the report.
Increased immigration isn't the only factor contributing to Canada's rising home prices. The benefits that new Canadians bring to the economy far outweigh their impact on the housing market. Although housing construction in Canada is currently near record levels, this pace has only been maintained since the pandemic's onset. A similar rate was observed in the 1970s.
We can attribute modern-day delays, higher prices, lower density, and to policies such as exclusionary zoning, heritage designations, and development charges, as well as labor shortages in the construction industry and supply chain issues.
Desjardins group, emphasizes the importance of a larger number of younger immigrants who can quickly join the labor force, given Canada's rapidly aging population. Their report states, "Canada needs skilled, young immigrants to increase productivity and offset the economic and fiscal drag from aging." Rejecting them due to an inability or unwillingness to build more housing would leave Canada worse off.
Desjardins predicts that without new policies to speed up homebuilding, housing prices will rise sharply in 2024, further undermining affordability.
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