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International student cap won't lower rental demand in near-term

Canada's recent decision to impose a two-year cap on international student admissions is not expected to immediately lower the demand for rental units, according to economist Rachel Battaglia from the Royal Bank of Canada. In a report released on Wednesday, Battaglia asserted that while the cap won't have an immediate impact on rental demand in 2024, it is likely to significantly slow down the growth of demand.

Battaglia's report estimates that the surge in demand for rental units by international students could decrease by approximately half in the year 2024. However, she also emphasizes that if the cap is maintained at the current level and extended beyond its expiry in 2025, the overall number of international students in Canada and the corresponding demand for rental units would eventually decline.

The report outlines a scenario in which, if the cap remains and extends past 2025, there could be a decline in the total number of international students by 2026. This projection is based on the expected substantial increase in the outflow of international students in the coming years, influenced by past international student arrivals.

Last month, Immigration Minister Marc Miller announced the two-year cap on international student admissions, entailing a 35% overall reduction in new study visas in 2024. Some provinces, including Ontario, are expected to experience a reduction of more than 50%.

Battaglia points out that as of September 2024, the total number of permits issued will be limited to 364,000, roughly half of the previous year's issuance. However, she also emphasizes that the total number of permits is just one factor contributing to the overall count of international students physically residing in Canada.

The report suggests that factors such as total enrollment figures, students from previous years, and permit expirations also play a role in determining the total number of international students. Assuming similar enrollment rates and outflow patterns observed in the three post-pandemic years, the report estimates that 391,000 new international students will enter Canada in 2024, with 291,000 graduating or seeing their study permits expire.

Despite the cap, rental demand from international students is not expected to decline in the short term, as these students predominantly live in rental accommodation. Battaglia notes that the impact of the cap will be most restrictive in provinces like Ontario and B.C., where international student admissions exceed their share of the Canadian population. The cap is based on provincial population shares, and as a result, the number of international students in Ontario and B.C. is projected to remain relatively flat in 2024, stalling new rental demand in these regions.

In contrast, the report suggests that Quebec and the prairie provinces will experience less impact from the cap on international student admissions.



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