Economics 101: Incongruent federal policies making housing unaffordable
By Eric Van Enk on January 27, 2024.
I recently read a CBC article published Jan. 11 entitled, “Immigration is making Canada’s housing more expensive. The government was warned 2 years ago,” which described how federal public servants from the department of Immigration, Refugees & Citizenship Canada (IRCC) warned Ottawa of a misalignment of population growth and housing supply in 2022. The federal government decided to ignore warnings provided by IRCC when it increased the number of permanent residents welcomed each year. I found the article alarming, not due to the record levels of immigration, rather, because the federal government ignored warnings provided by its own public servants that record levels of immigration would create a supply shortage and inflation in Canada’s housing market. To be clear, immigration is essential to Canada’s economic growth, as our country’s population would be in decline without it. Immigration is unambiguously positive for our country, both culturally and economically. However, should we not expect our federal government to have the foresight to strategically align immigration levels with housing affordability? Should we not demand the left hand know what the right hand is doing? In this week’s chart, we provide historical context for the record increase in Canada’s population. The blue line represents Canada’s annual population growth going back to 1945. Notice the largest annual increase in Canada’s population prior to 2023 occurred in 1949, due to the province of Newfoundland joining Confederation. In 2023, our population grew by more than double the largest growth year ever recorded. This occurred as our country was already facing a housing crisis created by high interest rates, elevated building costs and low affordability. The Bank of Canada also linked the increase in housing costs to record immigration levels. In a December speech, deputy governor Toni Gravelle warned that strong population growth is pushing rents and home prices upward. Government documents obtained by the author of the article revealed Canada’s immigration targets have exceeded expert recommendations, including the Century Initiative, an organization created for the sole purpose of growing Canada’s population to 100 million (~2.5 times current population) by the end of this century. When immigration targets exceed levels recommended by an organization whose ‘raison d’etre’ is to more than double the country’s population, common sense dictates reviewing the numbers to ensure they’re aligned with other government priorities (i.e. housing affordability). Even a basic level of competence from our federal government should be able to align immigration levels with housing supply, thereby reducing inflation, and creating room for the Bank of Canada to reduce interest rates. National Bank Financial – Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF), as well as a trademark owned by National Bank of Canada (NBC) used under licence by NBF. NBF is a member of the Canadian Investment Regulatory Organization (CIRO) and the Canadian Investor Protection Fund (CIPF), and is a wholly owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA). The information contained herein has been prepared by Eric Van Enk, Associate Portfolio Manager and Wealth Advisor at NBF. I have prepared this article to the best of my judgment and professional experience to give you my thoughts on various financial aspects and considerations. The opinions expressed herein, which represent my informed opinions rather than research analyses, may not reflect the views of NBF. The opinions expressed are based on my analysis and interpretation of historical data. Values and returns will fluctuate, and past performance is not necessarily a guarantee of future performance. The particulars contained herein were obtained from sources I believe to be reliable but are not guaranteed by me and may be incomplete. The opinions expressed are based upon my analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. The securities or sectors mentioned herein are not suitable for all types of investors. Please consult your wealth advisor to verify whether the securities or sectors suit your investor’s profile as well as to obtain complete information, including the main risk factors, regarding those securities or sectors. 13-12
