The report says Toronto had almost three times as much population growth from immigration as New York did in 2019. But it could be a different story this year as the pandemic curtails immigration to Canada.
A report from Rishi Sondhi at TD Economics says the pandemic has “thrown sand in the gears” of Canadian population growth. In the first quarter of this year, the country welcomed only 75,000 people, the lowest gain since 2015. In April, immigration dropped by 80 per cent year-over-year.
“While some of this set-back is likely temporary in nature, we see the mix of ongoing travel fears, a pandemic-related slowdown in processing times for immigration applications, government travel restriction measures and an only gradually heating global economy holding population growth well below its pre-virus rate of around 1.5 per cent annually over the next few years,” says Sondhi.
Royal LePage president Phil Soper says most immigrants take about three years after arriving in Canada before they purchase a property.
“Our research shows that many of the newcomers to our nation who intended to buy a home this year have already been living in Canada for three or more years,” says Soper. “A short-term drop in the number of new immigrants and international students will not directly impact home sales in the current year, as most newcomers will rent their first home. We may feel the impact of fewer new Canadians in our residential investment market with less demand for rental units. Mitigating the impact of this trend is a surge in first-time buyer interest. Some landlords may choose to sell to eager millennial families if rental demand softens.”
Sondhi agrees that the population slowdown will likely result in a “disproportionate blow to rental demand, given their concentration in industries with relatively low homeownership rates.”
Rental supply has generally been increasing, due to more purpose-built and investor-owned units becoming available, and the likely conversion of Airbnb units into long-term rental housing as tourism has been decimated. Rents have dropped in Toronto, Montreal and Vancouver, says Sondhi.
“Investors whose units are slated to complete over the next few years will have a much tougher time finding tenants, partly on account of significantly slower population growth,” he says. “At the same time, falling rents will raise the carrying costs of these properties, financially pressuring owners and likely causing some to sell. As the population slowdown lingers, demand for investor-owned rental units should drop, causing reduced sales. In these ways, weakness in the rental market will spill over into ownership housing.”
Sondhi cites a Statistics Canada study that shows ownership rates for recent immigrants have risen substantially since 1999.
He says 60 per cent of immigrants settled in Toronto, Vancouver, Montreal and Calgary last year. These are the same cities that saw the largest decrease in immigration in March and April.
The impact on the ownership market would likely be felt less in Montreal because homeownership rates there are lower than in the other cities. Calgary, however, may be hit harder because the unemployment rate there is likely to remain elevated through next year, Sondhi says.
“Even outside of these regions, lower immigration would leave its mark on ownership housing. Population growth has stepped up considerably across the Atlantic Region (except for economically challenged Newfoundland and Labrador) since 2016, driven by immigration. What’s more, these provinces seemed to improve their retention of these newcomers.”
Soper says that in the second quarter of the year, once provinces allowed real estate activity to resume, markets surged. There’s a shortage of inventory in many markets and pent-up consumer demand.
Sondhi notes that some of the 1.1 million net immigrants who have arrived in Canada since 2016 form part of that pent-up demand and they will power some sales growth. Just how much of an impact this will have depends on how many of the immigrants kept their jobs during the pandemic.
“Immigrants employed in full-time positions have seen larger job losses than those born in Canada during the outbreak,” he says.
He also notes that only 12,000 people emigrated out of Canada in the first quarter of this year, the lowest level since 2019. “The extent to which the pandemic slows emigration should provide some modest offset to weaker population inflows, as those who would otherwise be leaving the country stay in their current homes.”
Sondhi says weaker immigration numbers are expected to continue through at least 2021 as the global uncertainty of the pandemic lingers.
