National Bank warns deeper immigration cuts could worsen Canada's housing slump
A senior economist says meeting the government's 2027 immigration targets could put more pressure on the real estate market.
Canada's housing market could fall further if the federal government follows through on its plan to reduce immigration levels, National Bank of Canada said Wednesday. Senior economist Daren King warned that the planned cuts to non-permanent residents could put significant new pressure on real estate over the next two years. The housing market has already slumped this year with sales and prices declining, despite a smaller-than-expected drop in population growth. The federal government will announce its immigration plans for 2027 to 2029 on Nov. 1.
"The worst of the demographic adjustment, which we thought was behind us, could … still be ahead of us, and this would put even more pressure on the real estate market over the next two years," King said. The government's policy, first outlined in late 2024, aims to lower the share of non-permanent residents to five per cent of the population by the end of 2027. Statistics Canada data shows their share was 6.7 per cent in July, down from 7.2 per cent in 2024 but up from an April estimate. King said the market has weakened even with this slower decline in population.
The national benchmark home price fell 3.5 per cent in September, with sales down nearly eight per cent from a year earlier. The Canadian Real Estate Association reports the composite benchmark price is now 23 per cent below its early 2022 pandemic peak. King noted the inventory of newly built, unsold homes has reached a record high, while slower population growth has pushed up vacancy rates and pulled down rents. He said meeting the 2027 immigration target would intensify these existing pressures, making 2027 and 2028 a potential crunch time for the sector.
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British Columbia and Ontario are particularly vulnerable, as home sales there are already roughly 22 per cent below their 10-year average. King said population growth is expected to contract in British Columbia and flatline in Ontario over the next two years. Quebec will face the largest population decline, adding stress to a resale market where sales are below the decade average. The economist argued there is still time to avoid the worst effects if the government reconsiders its policy direction.
"With the cooling of the resale market, the new-construction sector and the rental market, the conditions already appear to be in place for housing affordability to continue improving in the coming years," King said. Prime Minister Mark Carney indicated in a September interview he was open to a controlled population increase. Last week, Ottawa changed one of its immigration programs for high-wage occupations to try to boost numbers and economic growth. King cautioned that failing to adjust policy would leave the market exposed to multiple challenges. "Without a change in policy direction, there is a risk that the real estate market will continue to suffer not only from low population growth, but also from rising interest rates, high construction costs and persistent geopolitical uncertainty," he said. Yadude Books reported in October that the Bank of Canada has said interest rates are too blunt a tool to fix housing affordability.
With files from Financial Post