Housing Supply Not Keeping Up With Immigration, Rents Soar

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Economist sees path to housing affordability by 2025, except for Vancouver and Toronto

News Analysis

Housing supply is not keeping up with a rapidly growing population and the problem is worsening in 2023, with a downturn in home building underway due largely to higher interest rates. The government’s higher immigration targets and record-breaking year for processing immigration applications are putting greater strains primarily on the rental market.

Canada’s overall housing market is in a situation where rents are soaring but the home prices are falling. But housing affordability isn’t improving due to high mortgage rates. And higher mortgage costs are getting funnelled down to renters from landlords.

Over the past year, the average asking rent grew by nearly $200, which is up 10.8 percent, to reach $2,004 a month in March and reflects how demand is outstripping supply, according to

But for home sales, the MLS home price index is down 15.5 percent year-over-year and the average national sales price was down 13.7 percent in March, according to the Canadian Real Estate Association.

“On a national level, we estimate that the current shortage of rental units is somewhere between 25,000 and 30,000. With demand increasing at this rapid pace, we estimate that that gap could quadruple to 120,000 by 2026. That is if we don’t considerably grow the supply of our purpose-built rental stock,” said RBC’s Rachel Battaglia during an April 26 podcast.

The surge in immigration disproportionately affects demand for rental housing. Thus, housing market analysts have been singling out the need for more purpose-built rentals where the units built are for being rented over the long term and are professionally managed.

Battaglia said purpose-built rental units are already being built at the fastest pace in almost a decade.

Immigration Nation

Canada’s population grew by just over a million in 2022, with international migration accounting for 96 percent of that growth, according to Statistics Canada on March 22. The record population growth rate of 2.7 percent would put Canada among the top 20 in the world and first among Organisation of Economic Co-operation and Development countries.

“A rise in the number of permanent and temporary immigrants could also represent additional challenges for some regions of the country related to housing, infrastructure and transportation, and service delivery to the population,” Statistics Canada said.

John Pasalis, president of Toronto real estate brokerage Realosophy Realty, said in an editorial for The Hub on Feb. 3. that supply-side policies “are not the panacea to our housing crisis.”

Pasalis added, “More journalists, economists, and editorials are questioning the goal of our federal government’s immigration strategy and whether their current immigration targets are doing more harm than good.

“A bigger concern should be how our government’s policies are driving up the cost of renting as renters typically have much lower household incomes as compared to homeowners, and unlike homeowners they don’t benefit financially from the rising cost of housing.”

Housing Supply Forecasts

Housing starts is a key statistic and a monthly figure measured by the Canada Mortgage and Housing Corp. (CMHC).

Oxford Economics noted in its April Canada housing quarterly chart book that housing starts fell 14 percent in the first quarter of 2023 compared to the previous quarter, to 226,000 units, and forecasts that housing starts will tally less than 200,000 units in 2023.

In June 2022, CMHC estimated it needed an additional 3.5 million housing units by 2030 to restore housing affordability to levels last seen in 2003 and 2004. This is on top of 2.2 million homes just to satisfy the growth in the number of new households between 2021 and 2030.

CMHC defines a home as being affordable if the rent is at most 30 percent of the tenant(s) gross income.

Housing starts hit a record of 300,000 during the pandemic, but to reach CMHC’s goals by 2030 would require almost doubling that pace, Tony Stillo, director of Canada Economics at Oxford Economics said in an interview.

“We expect a robust increase in housing, home building, over the medium term—not to the degree that CMHC or the government is aspirationally targeting. We think that’s going to be probably out of reach and we’re probably going to be shy of that,” he said.

But 2023 is shaping up to be a weaker year for home construction.

CMHC says in its April 2023 housing supply report that, “The full impact of the increase in interest rates is not yet reflected in our housing starts statistics.” 

The Crown corporation says the higher interest rate environment will likely slow construction activity and some projects could become unviable at higher financing rates. 

CMHC adds that during the pandemic when housing demand was very high and housing starts were also strong, the new supply was not enough to meet demand. It also noted that the amount of newly completed and unsold homes has dropped significantly.

Stillo explained that he does see a path to affordability in many regions in Canada by 2025, but he doesn’t see the affordability situation getting any better in hot markets like Toronto or Vancouver.

“I think we might be perennially in an excess demand situation. You’ll build more housing units, it’ll give you an affordability reprieve for a while,” but demand will then climb back up, “because it’s so attractive to live in,” Stillo said.

BMO senior economist Robert Kavcic said in a research note on April 14 that the lack of new listings is the big story in the housing market right now.

“March typically sees a healthy increase in inventory, but this particular month was the weakest for any March in 20 years,” he said.

The Bank of Canada projects housing to be a drag on 2023 economic growth by 0.8 percent before rebounding in 2024 to add 0.4 percent, noting “strong demand from immigration.”

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