Tighter immigration seen as 'golden opportunity' to get ahead of housing crisis

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Rising seemingly without end in recent years, rents across the country could start coming down in the near future, especially in university towns such as London, according to an analysis by the Royal Bank of Canada (RBC). That’s if the country takes full advantage of a population decline expected during the next two years, following cuts by Ottawa to its immigration target. It’s a “golden opportunity” to reduce the country’s housing shortage, though not enough to fix it completely, the Canadian bank says. Our Jonathan Juha reports.

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What are the immigration changes the federal government is proposing?

In an attempt to address concerns over affordability and deal with a slowing economy, a decline in job vacancies and rising unemployment, Ottawa announced earlier this year it was revising its immigration targets for both permanent and temporary residents.

The government said it will accept about 395,000 new immigrants in 2025, down from past targets of 500,000 people. This number is expected to fall to 380,000 by 2026 and 365,000 by 2027.

On top of that, Ottawa also has announced cuts to the number of visas it issues to international students to 437,000 study permits in 2025 from 2024’s 485,000 which was a 35 per cent cut from previous years.

Combined, the Liberal government’s plan to cut immigration levels is expected to result in a population decline of 0.2 per cent in each of the next two years.

Before taking into account those cuts, Canada’s parliamentary budget officer (PBO) had said in the past the country needed to build another 1.3 million homes by 2030 to close the housing gap. On Friday, however, the PBO reported the revised immigration plan will reduce that need by 45 per cent, or 534,000 fewer units.

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How could this impact housing in London?

The smaller number of newcomers arriving in the country will have a cooling effect on demand for rental units, according to RBC. That effect could be more profound in post-secondary school towns “where ballooning international student enrolment crushed vacancy rates.”

“In a previous report, we had mentioned the way demographic projections looked like, it would’ve been difficult to narrow the housing gap simply because the demographic demands would’ve been very high at a time when there were tremendous constraints in our ability to ramp up housing construction,” said Robert Hogue, RBC’s assistant chief economist.

“Now, those lower immigration targets . . . alter the equation and make it more possible to narrow the gap,”

Hogue added: “London, being a university town, would probably see the impact of a significant drop in international students, which would, to a certain extent, cool demand coming from students. So, we would envision London being amongst those areas where the new immigration policy will have an impact.”

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What about homeownership?

RBC anticipates home prices to take a different route than the rental market, with the bank projecting demand to increase, although not very rapidly, in the next two years.

That’s because the biggest factor that cooled demand for homes was higher interest rates, and immigrants are more likely to rent during their first five to 10 years in the country.

“There’s going to be some upward pressure building a little bit, but not that quickly, simply because housing affordability is still a big issue for a lot of potential home buyers,” Hogue said. “So, there might be more buyers out there, but they are not willing to be very aggressive on price and not starting to get into bidding wars.

“So overall, we do expect that home prices are probably going to start to trend higher (but) it will take some time for the price increases to really accelerate.”

But wait, isn’t London supposed to grow significantly during the next few years?

Yes. London’s population is projected to swell by about 56.7 per cent during the next 25 years, according to the latest projections by Ontario’s Finance Minister.

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If the forecast holds up, the local population of both the city and Middlesex County would reach about 880,000 people by 2051.

But also baked into the projections is a slower period of growth, with the province estimating population growing at a smaller pace in the coming years before picking up again in 2029. The province also attributes the slowdown to changes in federally set immigration targets.

Does that mean we need less housing than anticipated?

London has a provincially set target of building 47,000 new homes by 2031.

Though London is performing better in terms of housing starts than the majority of municipalities in Ontario, reaching that target would require a big jump in housing construction.

As of July, for example, London had broken ground on 1,864 homes, fewer than half of its 2024 target of 3,917 units, but already more than in all of 2023 at 1,804 units.

That’s why building as much as possible during the next few years is the only way to really tackle the housing affordability crisis, Hogue said.

“It would still be best to reach those goals,” he said. What the lower immigration targets do is “create a window to narrow the gap during that period.

“But when you look beyond 2027, for example, odds are immigration is going to pick up again, and so it is important for municipalities to keep being very, very ambitious on home building at large, but especially building homes that are more affordable.”

With Canadian Press files

jjuha@postmedia.com

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