This morning, Canada released the monthly report on Canadian Housing Starts. The figure was reported for March 2023 at 212k starts on an annualized basis. It gravitates around the 200-250k most months/years that it is reported. Obviously, it is near the lower end right now, given the spike in interest/mortgage rates, but that doesn’t really matter to the overall situation.
The Federal government has put a target of about 500k (437k in 2022) new immigrants coming into the country on an annual basis over the next few years. These are largely classified as Permanent Residents, but there is also a category for non-Permanent/Temporary Residents which includes about 600k in 2023 (according to a Reuters article March 22, 2023) who are largely coming here for humanitarian reasons (the war in Ukraine, Afghanistan, earthquakes in Turkey/Syria) and these are obviously important immigrants as Canada steps up to help those in need. And it is also important to recognize the contribution many immigrants make to our society and economy in various sectors like healthcare, skilled trades like construction, technology, etc. So, in total, Canada pulled in ~1mm immigrants the past year, largely due to the number looking to come here and the backlog in the system that the Immigration Department was unable to keep up with.
Importantly, StatsCan calculates that there are 2.3 people per household formation, on average. So, with 1mm people coming into Canada, we need to create about 435k new housing units in one year to house these immigrants properly. As described in the first paragraph, this country only produces about 200-250k new housing units per year. This leaves us with a “deficit” in housing supply of about 200k for at least the current year. To be fair, maybe 2022 (and 2023) could be exceptional due to external events creating a log jam on the immigration process, but even if Canada only accepts 500k in new immigrants, as targeted, and housing starts run in the 200-250k, we will just meet the housing needs of all immigrants, never mind the demographic consideration of those Permanent Residents looking to venture out of their parent’s basements to rent, lease or buy a place of their own.
Apart from all levels of government “finding religion” and actually creating more housing stock, the end effect, and we might be seeing it real-time the past two months, is that housing prices in this country will rise, if for no other reason than there is a 2:1 demand vs supply ratio of current housing in this country. The effect will be greatest in those Greater Areas where immigrants want to live and work.
And at every turn, the Federal government has attempted to halt the meteoric rise in housing prices for the past 6 years or so, but all to no avail. It seems they focus on increasing demand (like the new First Home Savings Account) and decreasing supply (like the new Foreign Buyer’s Ban…a friend of mine has an offshore entity that provides construction financing for residential real estate in Canada…his entity is banned for various reasons). Crazy.
It is simple economics of supply and demand.