In a much anticipated announcement, the Canadian government has confirmed its commitment last Friday to increase immigration targets to record levels amid the ongoing second wave of COVID-19.
Immigration Minister Marco Mendicino said that Canada plans on welcoming more than 1.2 million new immigrants over the next three years in an effort to boost the Canadian economy and fill gaps in the labour market.
“Our plan will help to address some of our most acute labour shortages and to grow our population to keep Canada competitive on the world stage,” said Mendicino.
Under the former Immigration Levels Plan released prior the pandemic, the immigration targets were only 351,000 for 2021 and 361,000 for 2022.
According to the new plan, the annual immigration intake is targeted to reach 401,000 in 2021, 411,000 in 2022, and 421,000 in 2023.
The new immigration targets are equivalent to one per cent of the Canadian population.
Ottawa plans on welcoming 232,500 immigrants from the economic class in 2021, 103,500 family members who belong to relatives already in Canada, 59,500 refugees and other protected groups, and 5,500 people on humanitarian grounds.
Some of the key highlights from the plan include:
- Increasing admissions over the next three years to make up for the 2020 shortfall.
Focusing on economic growth by ensuring at least 60% of admissions come from the Economic Class.
- Continuing to focus on innovative and community-driven methods to address the need for diverse labour across Canada
- Improving Canada’s immigration system to help support operations and mitigate impacts from COVID-19 on the processing of applications; and
- Providing a clear pathway to permanent residency for eligible asylum seekers who were working on the front lines during the pandemic by providing care to patients in health-care institutions.
These highlights are important from a real estate investment perspective because it shows Canada’s commitment to welcoming immigrants who are going to help drive the Canadian economy forward.
How COVID-19 Impacted Immigration
While Canada has continued to accept immigrants during the current pandemic, the government is hard at work minimizing disruptions to the immigration system by processing paperwork for skilled workers, family class immigrants, and temporary foreign workers to name a few.
The ongoing pandemic has caused travel restrictions, a reduction in application processing, and flight cancellations, which have essentially put a halt to the immigration system since March 2020.
It is estimated that by the end of this year, Canada will only have been able to accept approximately 200,000 of the 341,000 (60%) immigrants targeted for 2020.
Decline in Immigration Affects Real Estate Market
It is important to consider how the ongoing pandemic’s recent halt in immigration levels have weakened housing activity.
Many critics within the housing market have been quick to call out recent softening within the real estate market as signs of a housing bubble.
But, the current economic situation leading to market softening is complicated.
Before the pandemic we saw demand outpace supply in almost all key housing markets. This was supported by low unemployment and strong economic and population growth from immigration.
However, with COVID-19 came a drop in immigration, which created more supply than demand.
According to a recent report by RBC economist Robert Hogue, COVID-19 contributed to a decline in immigration that resulted in a significant impact on the Canadian housing market.
During Q2-2020, the number of new permanent residents dropped 64%, while at the same time more non-permanent residents left the country than those who entered it.
This resulted in a total net migration decline of 94%.
The Canadian economy began to shrink causing high unemployment and a halt in immigration, which had a direct negative impact on the housing market.
What we saw from mid-March to April were housing sales drop about 70% on average from the same time period last year in real estate markets across Canada.
Toronto Rental Market on the Decline
Recent Statistics Canada data also showed that physical distancing measures and travel restrictions created a negative effect on the rental market.
Prior to the pandemic, thousands of investors were buying properties as rental investments, but with travel restrictions came a huge shortfall in the pool of potential renters available on the market.
What happened in Toronto was a softening of average rental prices as new landlords were unable to find or attract clients because of the pandemic's smaller pool of available renters.
In addition, new rules around Airbnb increased rental supply as investors who were looking for short-term clients were now listing their units within the pool of other long-term condo rentals.
Toronto-based research firm Urbanation also recently reported that a total of 6,816 condo apartments were completed in Q3-2020 in the GTA, bringing the total year-to-date completions to 17,596 units.
These completions represented a 47% increase compared to last year, which contributed to the flood of listings within the rental market.
What’s also interesting is that current data showed that most newcomers to Canada rent upon their arrival, which creates an immediate impact on the rental market as a whole.
Immigrants not only support strong home sales, but also drive demand within the rental housing market.
Immigration’s Contribution to Economy
While newcomers are not the only ones buying or renting properties, their contributions are significant.
Immigrants help stimulate growth within the economy as data shows they purchase approximately 21% of homes in Canada.
“Immigration is essential to getting us through the pandemic, but also to our short-term economic recovery and our long-term economic growth,” said Mendicino.
The reality is that COVID-19 has reduced the number of immigrants into Canada, which does have an impact on housing.
Economists have always understood that major drops in immigration levels for any given year can be reasons that explain slower real estate growth.
There is no doubt that the pandemic caused a problem for the Canadian housing market, but the government’s commitment to increasing immigration levels is a positive sign on the path to recovery for the GTA real estate market.