Current immigration policy could be more clearly linked with national labour market demands, especially relating to construction trades, potentially addressing supply issues within Canadian real estate market, driven by skill shortages
With an increase in new Canadians settling in urban centres, what will the supply and demand dilemma look like in the Canadian real estate market by 2027? The answer could depend on who’s immigrating, according to a new four-part report from RE/MAX Canada, developed in collaboration with CIBC and The Conference Board of Canada.
Unlocking the Future: The Economic Chapter offers a five-year outlook and analysis of how real estate in Canada might respond to specific scenarios through 2027, such as interest rate hikes, annual immigration volumes and taxation, and explores how these factors may impact Canadians’ capacity to buy, sell and maintain their homes in a stable manner. Subsequent chapters, which will be released throughout 2022, will consider the influence of climate change, the status of on-premise work, and technology on the Canadian real estate market.
As the first quarter of 2022 comes to a close, many unstable factors are in play — from interest rates and inflation to a war in Europe — that will impact the economy in the near and far future. Based on specific plausible and confirmed scenarios, this report explores on how policy decisions might impact the Canadian real estate market over the next five years.
Unlocking the Future: The Economic Chapter
A recent survey, conducted by Leger on behalf of RE/MAX Canada, found that eight in 10 Canadians are asking themselves these same questions. Seventy-eight per cent of Canadians mentioned taxation, interest rates, economic recession, climate change, mixed housing, and/or public transportation as factors that cause them the most worry in their home-buying journey over the next five years.
In 2020, the Canadian economy experienced a 5.2-per-cent decline and in 2021 it saw 4.6-per-cent growth. As the economy rebounds from the pandemic, acute inflationary pressures are compelling central banks, including the Bank of Canada (BoC), to raise interest rates.
Additionally, the nascent conflict between Russia and Ukraine adds more uncertainty, impacting both inflation and economic growth.
According to CIBC Capital Markets, at the outset of the COVID-19 pandemic, three million Canadians lost their jobs and 2.5 million started working reduced hours. Now, the number of employed Canadians is above Canada’s pre-pandemic levels and Canada is exceeding its targets on the road to recovery (source). As Benjamin Tal, Deputy Chief Economist at CIBC Capital Markets, observed in developing this report, Canadians experienced the benefits of a recession, specifically ultra-low interest rates, during the first four waves of the pandemic without the costs of rampant unemployment.
Immigration may ease Canada’s labour shortage and increase demand in the housing market.
According to Tal, Canada has a labour shortage, especially when it comes to trades – an area of employment critical to meeting the new housing starts our market demands. With the influx of immigration expected in the coming years and in particular, the federal government’s goal to welcome 432,000 immigrants in 2022, it is expected that demand in the housing market will increase, especially in urban centres such as Vancouver and Toronto, which are hot-spots for new Canadians. With rising demand, what solutions are on the horizon to address affordability? Can governments implement new tax measures, or are other scenarios more likely?
“The Canadian housing market has historically given homeowners great long-term returns and solid financial security,” says Christopher Alexander, President, RE/MAX Canada. “In order to maintain this, as we look ahead, it’s crucial that governments and policy makers take a thoughtful and collaborative approach that addresses the worries Canadians have when it comes to home ownership.”
The survey commissioned by RE/MAX Canada also found that 61 per cent of Canadians believe real estate is the best long-term investment, and they do not expect this to change over the next five years. However, the majority of survey respondents do consider rising property-related taxes (64 per cent), rising interest rates (58 per cent), and possible capital gains tax (55 per cent), as barriers to buying a home in that timeframe.(7)
“Despite the ongoing challenges facing Canada and the world, if economic decision-makers make pragmatic and evidenced-based decisions that do not penalize Canadians, but incentivize then with regards to interest rates, immigration and taxation, the housing market is likely to be stable, albeit expensive over the next five years,” continues Alexander.
The Impact of Immigration on Canadian Real Estate
SCENARIO: Canada fulfils its commitment to welcome more than 400,000 immigrants per year to the country with a continued emphasis on integrating Economic Immigrants who generally have higher education, English and French skills, and prior Canadian work or study experience.
“Immigration produces significant benefits for the Canadian economy as a whole and helps meet the labour market needs of particular communities and sectors. Canada’s system excels at selecting immigrants who have a high likelihood of long-term economic success. However, the system could improve by selecting more immigrants to fit specific, chronic labour market needs. In particular, a focus on immigrants with skills in the trades and construction could help address severe labour shortages that limit housing supply,” says Iain Reeve, Associate Director, Immigration Research, Conference Board of Canada.
Research by the Conference Board of Canada has shown that higher immigration levels can benefit the Canadian economy with greater GDP and public revenues. CIBC Capital Markets and The Conference Board of Canada agree that the Canadian economy needs a minimum of 400,000-plus new immigrants annually to sustain our economic vibrancy.
In fact, despite the pandemic, Canada accepted approximately 405,000 new Canadians in 2021. According to Benjamin Tal, Deputy Chief Economist at CIBC Capital Markets, what is not often reported is that 70 per cent of the 2021 cohort were already established in Canada and approximately 50 per cent of the 2022 immigrants will be in-country. The key insight here is that we are not looking at 400,000-plus net new individuals settling anew in Canada with housing needs, but approximately half that number. They have been students and non-permanent residents with employment, promising prospects for employment and all with housing.
New immigrants are not the only factor to consider in determining housing demand. The formula is complicated and often does not look at things such as immigrants already living in Canada and Canadian students in temporary housing. To get an accurate measure of housing demand, further refinement is needed to housing data collection methods, according to both CIBC Capital Markets and The Conference Board of Canada.
As Tal explains, the profile of new Canadians is quite distinct from historical immigrant cohorts. Many have higher educational credentials and Canadian work experience. For example, just 10,000 new immigrants in 2015 held a post-graduate work permit, versus more than 88,000 in 2021, according to data compiled by the Conference Board.
It takes 10 years for immigrants to have earnings that are commensurate with their skills, education, and experience when compared to similar Canadian-born workers. According to Tal, that time has decreased by approximately half. In part, this is a result of Ottawa’s emphasis on economic immigrants and better immigrant support systems. This means that new immigrants can land on their feet faster and participate in the Canadian economy in various ways, such as entering into Canadian real estate ownership. In 2021, 38 per cent of homeowners in Canada were immigrants.
However, as both CIBC Capital Markets and The Conference Board of Canada state, Canada’s immigration levels alone are not an issue. There is a missed opportunity by not selecting more immigrants who are trained in the trades, where all regions across Canada are experiencing a deep labour shortage.
In reference to the construction sector alone, BuildForce Canada reported that 90,000 workers will be leaving the workforce in the next five to 10 years due to retirement. Yet, Canada has not accepted enough skilled trade immigrants in 2021 to fill these labour market gaps, according to the Conference Board of Canada. This will impact Canada’s ability to fulfill the new housing and affordable housing starts as predicted by the federal government.
“Currently, Canada’s federal immigration policy does not link with the country’s labour market needs and that will be a mounting problem in our capacity to build enough homes to meet the high demand over the next five years,” says Tal. “It’s all fine to table policy to improve our national housing affordability crisis by promising to build more homes and affordable housing — it’s critical — but it’s superfluous when you don’t have the skilled workers
to build it.”
“For several years now, RE/MAX Canada has been advocating for a coherent and achievable national housing strategy to calm red-hot price increases and more importantly, to improve affordability for a greater diversity of buyers and renters,” says Elton Ash, Executive Vice President, RE/MAX Canada. “Yet, as the experts at CIBC and The Conference Board show, our current immigration policy is lacking sufficient linkages with labour demands and as such is not set-up as successfully as it could be. Immigration policy should help support our labour demands.”