Sorry to disappoint you, but the housing shortage will not slow down next year or in three years, it will likely get worse. And with it, upward pressure on rents.
One of the main reasons has nothing to do with speculation, housing supply or municipal standards, but with demand, notably the immigration boom planned by Ottawa.
Let us be clear, immigration is a blessing, according to most experts. Except that the rate of entry of new arrivals is such that it is becoming difficult to sustain for the rental real estate market.
The figures I have looked at on temporary immigration are striking. The year 2023 will clearly surpass 2022, which was already a record.
To illustrate, this flow of new arrivals to Quebec in 2023 should exceed the population of the City of Sherbrooke (around 175,000), according to what we understand from data from Immigration, Refugees and Citizenship Canada. And most settle in the Montreal region.
I am not the only one to make this observation: the president of the National Bank, Laurent Ferreira, supported by his chief economist, Stéfane Marion, judges that the strong growth of the Canadian population fueled by immigration is inflationary, particularly on housing1.
Two phenomena combine. Housing starts are down sharply and temporary immigration is exploding.
After a record in 2021, housing starts have literally deflated, with the rise in interest rates. In Quebec, new rental housing – the first haven for immigrants – is being built at an annualized rate of less than 20,000, currently, far from the 48,000 in June 20212.
Similar phenomenon in Canada as a whole, although less marked: the annual rate of 95,000 rental starts in October 2022 fell to 81,000 last month3.
Meanwhile, the arrival of non-permanent residents is accelerating, if we rely on work permits granted by Immigration Canada.
During the first seven months of the year, authorities issued more than 122,000 new work permits to temporary residents of Quebec.
At this rate, Quebec would absorb more than 200,000 new non-permanent workers in 2023, more than double the 2022 record (94,195) and three times the pre-pandemic volume of 2019 (70,000). And again, we must add the increase in new foreign students.
For Canada as a whole, the number of work permits is also on track to double the record year of 2022, and will exceed 1.1 million, if the trend continues. With new international students, this figure is expected to be even higher.
In short, the increase is exponential and it necessarily has an impact on the real estate market4.
What explains the explosion? It is impossible to get precise and rapid answers from Immigration Canada. Is there a wrong count? A treatment delay that has been filled? A regulatory change favoring the boom?
The Statistics Canada agency will provide an update on these non-permanent residents on Wednesday morning, after discussions with Immigration Canada and provincial experts. His opinion speaks of a record level in the first quarter of 20235.
According to my research, Ukrainians, temporary workers called to relieve labor shortages and asylum seekers at airports, among others, explain the situation. Immigration Canada is also more permissive (see other text).
Regardless, this immigration boom is putting pressure on the residential market, but also on public services, such as health and education, which are already overwhelmed. And it raises fears that it will harm Canadian immigration objectives, particularly among foreign students from industrial countries, who could look elsewhere.
Moroccan of origin and Muslim, Me Nadia Barrou, who immigrated here around forty years ago, is worried. “I say it with kindness, but what is happening is excessive. We want immigration, of course, it’s my job. But we are unable to give our best, because we lack reception infrastructure for immigrants and there are incredible delays. We no longer take into account the anxiety of newcomers, who are helpless.
The influx can also create tensions, arouse anti-immigrant sentiment in the population, which struggles to have health, daycare and other services.
Nadia Barrou, lawyer specializing in immigration
Perhaps it will be possible to alleviate the housing shortage at some point. After all, the flow of Ukrainians will eventually dry up, Ottawa could temper its immigration objectives and the authorities could relax certain urban planning rules, for example by allowing more accessory dwellings (basement, backyards, parking spaces, etc.).
However, we must give up on affordability, entrepreneurs explain to me, in search of solutions to reduce their costs, especially with the level of interest rates. A new four and a half room apartment at $1,800 per month in the Montreal region is no longer an exception.
Moreover, a recent CMHC study concludes that to return to the affordability of the 2000s, the increase in the housing supply should be such that housing construction in Quebec would have to be tripled by 2030, to 150,000 construction starts per year.
However, the all-time Quebec record is 74,000 in 1987, and the industry is currently experiencing a labor shortage, let us remember.
Let’s forget magical thinking, we will have to live with this new housing reality for a long time…
2. These data are a little different from those generally published by CMHC, since I took a six-month moving average of seasonally adjusted housing starts, in order to better understand the trends.
3. The share of rental in Quebec is much greater today (58%) than 10 years ago (20%), as is the case in Canada (30% in 2022 compared to 12% in 2012).
4. Part of the increase can be explained by the renewal of work permits already granted, but the main part comes from new holders.
Where does the boom come from?
Various factors explain the explosion in the number of non-permanent residents. Among them is the flow of Ukrainians, temporary workers and the greater permissiveness of Immigration Canada.
Over the past year, the scarcity of labor has prompted businesses to increase requests for workers under the Temporary Foreign Worker Program (TFWP), especially in Quebec.
The pace will slow down in the coming months with the economic slowdown, if we rely on data and observations on the ground from the specialist firm Auray Sourcing. All the same, requests from businesses to obtain PTET permits continue to be much stronger than before the pandemic, which is a precursor to the entry of new arrivals in the coming months.
Ukrainians
The boom also comes from the influx of Ukrainians who fled the war. To quickly grant them work permits, the federal government has adopted a specific component in its International Mobility Program (PMI).
The effect is clear: during the first seven months of 2023, more than 69,000 Ukrainians received their work permit in Canada – a good part in Quebec – and at this rate, the volume will exceed that of 2022 by 50%.
The explosion also comes from foreign students who find work in Canada once they have completed their diploma (post-graduates). The phenomenon is growing in Quebec, but it is much more significant in Ontario, where it even represents 35% of new work permits for non-permanent residents in 2023, compared to 10% in Quebec.
The contingent of Indian students, among others, is very strong in English Canada.
But there is something else. The strong growth also comes from the expansion, in recent months, of the categories of temporary immigrants for whom the federal government no longer requires a labor market impact assessment to be carried out to obtain a permit.
Before 2023, for example, only so-called “qualified” employees could bring their spouses and children to Canada and allow them to obtain an open work permit. This PMI requirement has been extended to all types of employment, whether waiter or engineer, explains immigration lawyer Nadia Barrou, from Montreal.
And it applies everywhere in Canada, even in Quebec, without the Legault government having a say.
Another important element: a contested measure by Immigration Canada has suddenly increased asylum requests at Canadian airports in recent months, particularly from nationals of West Africa, but also of India, among others.1.
And for many of them, a work permit is almost automatically granted, even if their refugee status is not yet certified, something which can take several months, M explains to me.me Barrou.
A look at the origin of permit holders reveals that a large contingent of temporary immigrants come from countries in troubled situations, such as Haiti, Iran and Nigeria, whose nationals obtain permits under the PMI.
Nationals of Indian origin, that said, are the most numerous to immigrate temporarily to Canada, by a long way. The observation is striking in the context of recent tensions with India linked to the assassination of a Sikh leader.