The following is the fourth installment in a multi-part series tackling Canada’s housing and immigration crises. The series will focus on their root causes, intertwined nature, and potential solutions. Be sure to check out parts one, two, and three.
Part three of this series explained how, despite the significant densification of Canada’s major urban areas, our housing affordability problem has only become more dire.
What then is the solution?
The only feasible solution to our housing crisis is to significantly dial down the increase in new permanent residents (PRs) and the net increase in non-permanent residents (NPRs) at least until the construction of new homes has caught up with the extraordinary population increase of recent years. The notion that Canada could absorb the levels of immigration of the last eight years without serious negative impacts on its housing market, its labour market, and its capacity to provide public services such as health, education, and infrastructure was, frankly, delusional.
How significantly do we need to dial immigration down? Focusing only on the housing market, the answer to this depends primarily on three factors:
- The desired population-to-house ratio. How many houses do we think we need to adequately house Canadians?
- A target date to establish that desired population/house ratio? In other words, how quickly do we have to restore some order of balance to the housing market before broad swaths of the public totally lose patience with their governments?
- How many houses can Canada construct over any period of time?
I have done some rough calculations to determine what level of increase in new PRs and net increase in NPRs Canada could accommodate under the following scenario:
- The population-to-house ratio would be re-established to its 2021 level.
- This target population-to-house ratio would be achieved by 2031—the end date of the federal government’s current housing plan.
- Canada would build houses in 2024-31 at the same rate as the 2016-23 period.
For several reasons, such a scenario is, in my opinion, a generous one, in the sense of calculating a relatively large amount of room for new PRs and a net increase in NPRs. First, most Canadians would not have viewed 2021 as the “good old days” in terms of housing availability.
Secondly, I am not sure the Canadian public will be patient enough to wait until 2031 to get back to the 2021 population-to-house ratio.
Finally, the number of houses completed in 2016-23 was already the highest eight-year total since 1975-82, when it was much easier to convert farmland into urban land. It is not clear that the rate of 2016-23 can be sustained over the next eight years. There are already significant stresses showing up in the housing development industry this year, and it may well be that we are about to see the down part of the construction cycle in the housing sector.See here, for example.
In any case, based on this scenario I calculate that Canada will need to limit the number of new PRs and net increase in NPRs to an average of 175,000 per year between now and 2031. This is a significant reduction from the 640,000 per year average over the past five years.
The federal government has announced its intention to limit the total number of NPRs to five percent of the Canadian population. If it does so, under the scenario modelled here this would lead to a net reduction of 680,000 NPRs by 2031. This would create room for an average increase in permanent residents of 270,000 per year—cutting the federal government’s current target of 500,000 almost in half.
While this seems like a dramatic reduction in numbers, it is important to keep in mind that the average annual increase in PRs in the 10 years before the current government came to power was 255,000 per year.
I won’t argue that these numbers be taken as anything more than an illustrative order-of-magnitude estimate of the change needed in Canada’s approach to immigration levels. One can go back to the assumptions in the scenario and dial them one way or the other and come up with different numbers, either higher or lower. In any case, Canada does not need to lock in on specific numbers for the next eight years. As key factors change, the federal government can adapt as evidence suggests it should.
It is possible that the various government policies being put into place will increase Canada’s ability to build more houses over the period 2024-31 than were built in 2016-23. Until there is concrete evidence that this will be the case, however, I suggest that continuing high levels of immigration on the premise this will happen seems like a classic case of hope over experience.
Given how much damage has been done already to younger Canadians’ hopes for home ownership and, not unrelated, Canadians’ support for healthy levels of immigration, continuing on with this bet would be more than a little reckless.
