The drastic reduction in immigration targets announced by the federal government is one of the more consequential policy reversals in recent memory. It will sharply reduce growth in housing demand over the coming years, making it possible for Canada to narrow the housing supply gap.
Ottawa estimates that slashing targets for permanent residents and reducing the number of non-permanent residents by more than 900,000 over two years will result in the population falling by 0.4% by 2026. It will start to grow slowly from 2027 onwards.
We doubt non-permanent residents can be cut by so much so quickly, but the policy shift will slam the brakes on population growth after reaching a six-decade high recently.
It will also significantly curtail household formation in the country. This is important, because it drives the number of new housing units needed.
Housing markets are currently significantly undersupplied. Canada will now get a golden opportunity to reduce the housing shortage so long as the recent pace of homebuilding is sustained—or better yet—further expanded.
We project that nearly 400,000 fewer households (or -46%) will be formed over the next three years than we had expected in The Great Rebuild. It reduces pressure on construction as fewer new homes are required in that timeframe.
We now expect an average 150,000 new households will be formed annually under this stricter policy—well within the number of new units the construction industry can deliver. Housing completions averaged 225,000 units in Canada in the past three years.
The new forecast is a sharp contrast to our prior outlook that expected continued underbuilding through to 2027—leading to a wider supply gap.
What the new policy shift won’t do is instantly rebalance the market. We estimate growth in housing stock fell short of new households by 545,000 between 2015 and 2023. This gap will take years to undo.
It also won’t guarantee a reduction in the shortages of every type of housing and price point. High construction costs will continue constrain homebuilders’ ability to deliver homes at the more affordable end of the range.