The Bank of Canada says record levels of immigration are driving up housing costs, and that recent government efforts to reduce the number of non-permanent residents and encourage housing construction will lower housing costs, but “not gradually.” “Yes.”
“In the short term, population growth, especially in a supply-constrained environment, will put upward pressure on prices,” said Carolyn Rogers, senior deputy governor at the Bank of Canada.
“What happened in the Canadian economy last year was that there was a particularly large increase in population growth from immigration. It happened at a time when supply was constrained. This was most clearly seen in the housing sector, particularly in rents. I understand” . ”
Mr. Rogers joined Bank of Canada Governor Tiff Macklem at a press conference Wednesday to release the bank’s Monetary Policy Report, the bank’s quarterly snapshot of the economy.
Mortgage rates are rising at about 30% a year, and rents are rising at about 8% a year, the report said.
Immigration is “certainly one of the things that is putting pressure on the housing component of inflation,” said Carolyn Rogers, senior vice president of the Bank of Canada.
The report also found that while multiple factors contribute to rising home prices, including rising insurance and maintenance costs, a shortage of construction workers, and onerous zoning and permitting regulations, immigration remains the main pressure. It is also said that it is the source.
“The growth in new entrants is significantly higher than in the past, putting pressure on structural housing supply constraints,” the report said. “This has pushed overall housing vacancy rates to record lows, supported home prices and led to higher rents.”
In fall 2022, the Liberal government announced that the annual permanent resident target would increase from 405,000 in 2021 to 465,000 in 2022, before stabilizing at 500,000 in 2024. This is almost double the 260,411 permanent residents who arrived in 2014.
But new permanent residents are only part of the immigration problem.
Statistics Canada reports a total population increase of 1,158,705 permanent residents and non-permanent residents as of July 1, 2023, an increase of 2.9 per cent compared to July 1, 2022, and This was the highest rate of population growth in the 12 months since.
According to the agency, 98% of the increase is due to immigration, and the rest is due to natural increase (the difference between births and deaths).
According to Statistics Canada, by the end of 2023, there were 2,511,437 non-permanent residents (a class that includes international students and temporary foreign workers) in the country, compared to 1,305,206 as of fall 2021.
Housing inflation will be resolved ‘gradually’
pressure on the rental market; housing experts saythese immigrants almost exclusively rent rather than buy and therefore come primarily from non-permanent residents.
In 2011, the number of international students in the country was just under 240,000. Late last year, Immigration Minister Mark Miller said Canada was on track to admit as many as 900,000 international students in 2023.
To address the causes of pressure on the housing market, the Liberal government announced this week that it would place a cap on the number of student permits for the next two years.
The government has announced that it will approve only 360,000 undergraduate study permits in 2024. This will decrease by 35% from 2023.
Former immigration minister and current housing minister Sean Fraser said he had “started exploring the possibility of a cap” when he was minister, but “wanted to give states and agencies the opportunity to actually address the issue”.
To address other housing pressures, the federal government introduced the Housing Acceleration Fund and allocated $4 billion to it from 2026-27 with the aim of accelerating housing construction in cities. The fund’s goal is to build 100,000 more homes across the country by streamlining land use planning and development approvals.
“Persistent structural supply challenges and persistent demand from population growth are likely to continue to put pressure on house and rental prices,” the Monetary Policy Report said.
“Recent government measures should help ease some of these constraints, but we expect the imbalance to only be resolved gradually.”
widespread inflationary pressures
Macklem said continued inflation precludes rate cuts in the short term, even as mortgage interest costs have risen by about 30% and rents have risen by 8%.
“Shelters are not the only source of inflationary pressures. Food price inflation was very high, around 10%, but is now coming down. But 5% is still too high,” he said on Wednesday.
“If you look at the share, [Consumer Price Index] Components that are up 3% or more are just over 50%. Potential inflationary pressures still exist for many goods and services. ”
When Statistics Canada released its consumer price index (CPI) numbers in December, it said the overall inflation rate was 3.4 per cent, above the target range of 1 to 3 per cent.
According to Statistics Canada, other major inflation factors were the cost of food (up 5%), groceries purchased at restaurants (up 5.6%), auto insurance (up 5.9%), and alcohol and tobacco (up 4.3%). That’s what it means. percent).
“Inflation remains somewhat broad-based, so we’re concerned about the persistence of underlying inflation, which is why we’re keeping interest rates on hold at 5% today,” Macklem said.