A “golden opportunity” to get ahead of the housing crisis

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Rising seemingly endlessly in recent years, rents across the country could start to fall in the near future, particularly in university towns like London, according to an analysis by the Royal Bank of Canada (RBC). Provided that the country takes full advantage of the demographic decline expected over the next two years, following Ottawa’s reductions in its immigration target. This is a “golden opportunity” to reduce the country’s housing shortage, but not enough to completely address it, according to the Canadian bank. Our reports from Jonathan Juha.

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What immigration changes are the federal government proposing?

To address concerns about affordability and deal with a slowing economy, falling job vacancies and rising unemployment, Ottawa announced earlier this year that it was revising its immigration targets to permanent and temporary residents.

The government has said it will accept about 395,000 new immigrants in 2025, down from previous targets of 500,000 people. This number is expected to drop to 380,000 by 2026 and 365,000 by 2027.

In addition to this, Ottawa also announced a reduction in the number of visas issued to international students, dropping to 437,000 study permits in 2025, compared to 485,000 in 2024, a reduction of 35 percent compared to previous years.

Together, the Liberal government’s plan to reduce immigration levels is expected to result in a population decline of 0.2 per cent in each of the next two years.

Before factoring in these cuts, Canada’s Parliamentary Budget Officer (PBO) had previously stated that the country needed to build 1.3 million more homes by 2030 to close the housing deficit. However, on Friday the Parliamentary Budget Officer announced that the revised immigration plan would reduce this need by 45 per cent, or 534,000 fewer homes.

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What impact could this have on housing in London?

The smaller number of newcomers arriving in the country will have a cooling effect on demand for rental housing, according to RBC. This effect could be most profound in cities with postsecondary institutions “where skyrocketing international student enrollment has crushed vacancy rates.”

“In a previous report we mentioned what the population projections looked like, it would have been difficult to close the housing gap simply because population demands would have been very high at a time when there were enormous constraints in our ability to accelerate housing construction,” said Robert Hogue, deputy chief economist at RBC.

“Now these lower immigration targets. . . change the equation and help narrow the gap further,”

Hogue added: “London, being a university city, would likely see the impact of a significant drop in international student numbers, which would to some extent dampen demand from students. We therefore envisage that London will be one of the regions where the new immigration policy will have an impact. »

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What about homeownership?

RBC expects house prices to follow a different path than the rental market, and forecasts that demand will increase, albeit not very quickly, over the next two years.

Indeed, the main factor dampening housing demand was rising interest rates, and immigrants are more likely to rent during their first five to 10 years in the country.

“There’s going to be some slight upward pressure, but not so quickly, simply because housing affordability remains a major issue for many potential buyers,” Hogue said. “There may be more buyers, but they are not willing to be very aggressive on price and not get into bidding wars.

“So, overall, we expect that house prices will probably start to rise (but) it will take some time for the price rise to really accelerate.”

But wait, isn’t London expected to see significant growth over the next few years?

Yes. London’s population is expected to increase by about 56.7 percent over the next 25 years, according to the latest projections from Ontario’s finance minister.

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If forecasts are confirmed, the local population of the city and county of Middlesex would reach approximately 880,000 people by 2051.

But the projections also take into account a period of slower growth, with the province estimating its population will grow at a slower rate in coming years before resuming in 2029. The province also attributes the slowdown to changes in population targets. immigration set by the federal government.

Does this mean we need less housing than expected?

London has set a provincial goal of building 47,000 new housing units by 2031.

Although London performs better in terms of housing starts than the majority of Ontario municipalities, achieving this goal would require a significant increase in housing construction.

In July, for example, London had inaugurated 1,864 homes, less than half of its target of 3,917 homes for 2024, but already more than for the whole of 2023, or 1,804 homes.

That’s why building as much as possible over the next few years is the only way to truly tackle the housing affordability crisis, Hogue said.

“It would still be better to achieve these goals,” he said. What the lower immigration targets do is “create a window to close the gap over this period.”

“But if we look beyond 2027, for example, there is a good chance that immigration will resume, and so it is important that municipalities continue to be very, very ambitious in terms of building housing in general, but above all by building more affordable housing. »

With files from the Canadian Press

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