Does Canadian immigration actually affect the real estate market?

The real estate industry in Canada is impacted by so many different factors, and immigration is one of those contributors. Here, we've taken a look at the Canadian immigration and the ways in which it can affect the real estate market.

150 Years of Immigration

Canada was built on immigration. Regardless of whether we were born in Canada or not, our being here is a direct result of our ancestors’ migration. When Canada celebrated its 150th anniversary in 2017, the government posted an interesting message addressing immigration and expectations for the future. It noted we welcomed 286,000 permanent residents in 2017. More than 50% were admitted under Economic Class programs and over 44,000 came to our country as refugees.

The same year, the government planned to “grow annual immigration levels to 340,000 by 2020.” This translates into an increase of new Canadians entering the country at 1 percent annually. The goal is to allow 60 percent of immigrants to enter the country in the Economic Class. The Economic Class consists of professional and skilled workers. As such, the government believes the country will be better prepared to “sustain our labor force, support economic growth and spur innovation.”

Looking at Trudeau’s 2020 – 2021 Immigration Plan, Canada hopes to:

  • Promote growth in smaller communities

  • Increase permanent resident admissions

  • Support faster family reunification

  • Increase refugee protection

  • Drive economic growth

So how do these numbers affect the real estate market?

Producing New Homes to Meet Demand

According to the Vancouver Sun, in general, the real estate industry is focused on producing new homes as the population grows due to immigration. The industry is particularly concerned about Metro Vancouver and Toronto where zoning is causing issues. Many in the industry feel these cities should allow for higher density zoning to accommodate immigration demand.

Josh Gordon, a specialist in public policy at Simon Fraser University, says it makes more sense to imagine how housing prices would be affected if there were zero immigrants entering the country. “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 told the Vancouver Sun. “The actions of those organizations believe the idea that immigration is not likely to have much impact on prices.”

Immigration and Housing Prices

According to StatsCan, immigration does impact pricing. For example, in Vancouver, single-detached houses owned by immigrants are valued on average about 17% more than what the average Canadian-born person pays for a single-detached home. While an immigrant in Vancouver would pay an average $1.77 million, Canadian born Vancouverites pay $1.51 million. Adding to the disparity of pricing, immigrant-owned semi-detached houses have lower average assessment values with a difference of about $126,400. Value differences are apparent on a smaller level for condos and row houses.

In Toronto, it is the opposite, with immigrants owning less expensive properties, averaging a difference of about $88,200 for semi-detached homes. There is, however, similarly lower assessment values for immigrant-owned properties although the difference is not as broad. The most noticeable difference in Toronto is seen in condo apartments but at a far lower average of $52,400.

What Affects Prices?

The housing market is the same as any market in that in its most basic form it is driven by supply and demand. When it comes to immigration, an increase in population can affect supply. It brings more buyers (and renters) into the market which contributes to rising prices, especially in markets like Toronto where inventory is low. However, how the number of immigrants affects housing prices is dependent on their financial situation.

It is important to remember, most immigrants must first assimilate to their Canadian lifestyles, which means many will settle in lower-income rentals. Once more established, they are better positioned to purchase a home. However, there are also investor-class immigrants joining the population who can have a more immediate impact on housing prices in Canada according to the Financial Post.

Where people choose to live must also be considered. Immigrants tend to live in a city where they can find work. When housing prices are falling it can have a positive impact, as the increase in population can help stimulate demand, helping to stabilize the real estate market. Unfortunately, with prices soaring in cities like Toronto where inventory is limited, an increase in population will add to demand, helping to force prices upward.

Immigration and Pricing

The Financial Post points out two conflicting studies when it comes to immigration and housing prices. An older study by Saint Mary’s University estimated the effects of immigration on housing prices in Canada was an increase of no more than 0.1 percent to 0.12 percent. The study indicated it is more likely established immigrants would contribute to price rises. This furthers the idea that recent arrivals are still assimilating, while those who have been in the country for 10 plus years are more financially able to invest in a home. However, newer studies have different findings.

The University of British Columbia looked at the closure of the investor immigration program and its effects on Vancouver housing prices. The closure negatively impacted housing prices with decreases ranging from 1.7 – 2.6 percent for neighborhoods favored by investor immigrants. However, in select neighborhoods, wealthy immigrants did contribute to higher prices.

Foreign versus Immigrant Ownership

There is also some confusion when it comes to foreign ownership versus immigrant ownership. For example, the measures taken by the federal government to make it more challenging for foreign home buyers to invest in Canadian real estate targeted investors not living in Canada. However, according to Josh Gordon, foreign ownership in his eyes should consider purchases by those using funds earned outside of Canada. “There is some overlap to the extent that immigration, as it happens in Canada, involves many people arriving with significant amounts of wealth,” he points out. “The point of the measures in relation to foreign ownership is to discourage the de-coupling of the housing market from the labor market, to discourage the use of large amounts of foreign capital to purchase property in Canada.”

To recap, Canadian immigration directly increases the population, with most population growth seen in cities like Vancouver and Toronto. As a result, the impact of immigration on the real estate market is more likely to be due to an increase in housing demand. As well, more established immigrants and investor-immigrants are more likely to impact prices as they will be the people more likely to be investing in higher priced homes in more desirable neighborhoods.

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