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Huge increases': Economists sound alarm over impact of Canada population growth on housing market

Canada’s working-age population has surged dramatically in early 2024, surpassing last year's record increases and threatening to intensify the strain on the nation's already pressured housing market.

According to Statistics Canada, the working-age population grew by 411,400 people in the first four months of 2024. This represents a 47% increase over the same period in 2023 and is nearly four times the average growth from 2007 to 2022.

The population boom in 2023 had already heightened concerns about Canada's housing crisis, leading the federal government to announce plans to curb new arrivals. However, economists at the National Bank warn that the trend in 2024 could worsen the situation before any improvements are seen.

“With such significant population growth, we might see continued resilience in home prices,” said Matthieu Arseneau, the bank’s deputy chief economist. “The vacancy rate, already at a record low at the end of 2023, could fall even further, potentially nearing or dropping below one percent.”

Arseneau attributes the surge in population partly to people moving to Canada ahead of anticipated government measures to limit immigration. He notes that major cities like Toronto, Vancouver, and Montreal are experiencing even more pronounced growth. Toronto’s population increase from January to April was 67% higher than in 2023, with Vancouver and Montreal also seeing more than double last year's growth.

The unprecedented 3.2% population growth in 2023 was the fastest since 1957, sparking significant political and economic debate over its impact on housing. In response, the federal government reduced international student visas by 35% and introduced a cap on temporary residents.

Despite some positive signs for affordability, with slower sales keeping home prices down, the rapid population growth is likely to undermine these gains. The demand for rental units, already in short supply, is expected to drive rents higher, adding to inflationary pressures. This complicates the outlook for interest rate cuts, which are expected in the second half of the year.

The IRCC acknowledges the challenges, emphasizing the need for coordinated efforts to address the housing crisis. The agency states that it is aligning immigration policies with housing and infrastructure measures to strike a balance between economic needs and sustainable growth.

National Bank economists project the working-age population to grow by three percent in 2024, surpassing last year's 2.3% increase. While they expect growth to taper off later in the year, the effects of the recent population surge will likely continue to impact the housing market for years to come.

“The big challenge for Canada over the next five years will be managing this housing shortage,” Arseneau said. “It will take several years to ease the pressure on the housing market caused by this population boom.”

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