Argument on immigration has its holes
Rapidly rising housing prices in Canada have fuelled an exciting and highly relevant debate about its determinants, such as whether the demand for shelter is growing too fast, as some believe, or is supply lagging demand, resulting in more buyers competing for fewer units to buy and rent.
A recent commentary suggested that the demand for new housing directly results from the net increase in population, which is mainly driven by immigration. According to Statistics Canada, “international migration has accounted for more than three-quarters of the total population growth since 2016, reaching 85.7 per cent in 2019.”
One can argue that if immigration is the reason behind population growth, which determines the demand for shelter, perhaps Canada should reconsider the number of immigrants it admits each year to ease the pressure on housing and infrastructure.
Canada’s economy has grown over the years, almost in step with the increase in its population. World Bank data show that the country’s gross domestic product (GDP) per capita has more than doubled since 1990. Canada’s GDP per capita used to be similar to that of the United States, but the gap has widened since 2012.
Some argue that growing the economy by increasing the population is not the right approach. They say Canada should focus on increasing economic productivity by exploring ways to increase its GDP per capita, which may require a lower increase in population to sustain economic growth. One result of that, some believe, is that housing prices would become more affordable because there would be less demand.
But the argument that immigration is the primary driver of housing prices in Canada ran into a serious challenge in 2020 when immigration levels considerably declined because of pandemic-driven restrictions. Canada’s population in 2020 increased by 0.4 per cent, one-quarter of the increase observed a year earlier, according to Statistics Canada.
To put those numbers in perspective, consider that 2020 had “the lowest annual growth since 1945 (in number) and 1916 (in per cent), both periods in which Canada was at war,” Statistics Canada said. Furthermore, immigration played a much smaller role in population growth, such that the “population increase through international migration in 2020 was over 80 per cent lower than it was in 2019.”
Those who argue that immigrants and foreign investors are the primary determinants of housing price inflation would have a tough time explaining what role, if any, new immigrants played in the record escalation of housing prices during the pandemic. Borders were mostly shut, immigration numbers were down and the international flow of capital choked because of the economic uncertainty.
Hiding beneath the rhetoric for and against population growth is how the demographic landscape is uneven across Canada. While the nation’s population grew, hundreds of small and mid-sized cities shrank. Even Montreal’s population dropped to 1.7 million in 2016 from 1.77 million in 1971 (the city’s peak population year).
Maxwell Hartt, a professor of geography and planning at Queen’s University, explored the uneven population growth in cities and towns with declining populations in a recently published book, Quietly Shrinking Cities: Canadian Urban Population Loss in an Age of Growth. The book presents a meticulous study of why people leave a city or have fewer children, causing the population to decline.
Hart said immigration was critical in stabilizing Canada’s population growth. Without it, the population would have shrunk, because Canadians have not had enough children to replace themselves since 1972. He also noted that “Canada’s immigration policies have led to reduced levels of population loss and abandonment in Canadian shrinking cities.”
The differences and similarities between shrinking cities and others are intriguing. For example, Hart observed that both shrinking and growing cities were similar in terms of their Aboriginal population and the percentage of adults with post-secondary education.
What set shrinking cities apart was that their population was older and had fewer immigrants and visible minorities. The share of immigrants in growing cities was 83 per cent higher than that in shrinking cities, while the percentage of visible minorities in growing cities was more than double that in shrinking cities.
Shrinking cities do not experience demand-side pressures on housing. Relative to income, housing is far more affordable there than in towns with growing populations. Yet shrinking cities continue to shrink. The relative affordability and the absence of population pressures do not make a place desirable enough for residents to stay and keep population levels stable.
The demand-side pressures on housing and infrastructure are just one consideration when determining adequate levels of immigration. Another consideration is how many workers are needed to keep the economy growing and to replace a rapidly aging workforce.
The discussion about housing demand is relevant, but it should not attempt to hide that Canada has a supply problem. Fewer homes have been built in recent years than in the early 1970s when there was a much smaller population.
More buyers chasing fewer homes to buy and rent is at the core of housing price inflation. Removing supply-side alternatives from the mix of solutions will only make matters worse.