November 25, 2014
Article courtesy of OPP-connect.com
With numbers of non-permanent residents underestimated by around 100,000, demand is being boosted in housing and rental markets in Canadian cities, says a new report from the CIBC bank
Immigration numbers in Canada have been underestimated by around 100,000 and the sector is playing a greater role in supporting the housing market in some of its largest cities, a leading bank believes.
Non-permanent residents — students, temporary workers and humanitarian refugees who are currently residing in Canada – play a key role in demand for new housing and in the rental market, particularly in Toronto, Vancouver and Calgary, says the CIBC’s latest Economic Insights report.
A “huge gap” in the official numbers for non-permanent residents from Statistics Canada’s census data and Citizen and Immigration Canada (CIC), means that household growth projections have been understated.
Benjamin Tal, CIBC Deputy Chief Economist, who co-authored the report with Nick Exarhos, says, “Ask any real estate developer in any of Canada’s major cities about the risk of overbuilding, and the first line of defence would be immigration and its critical role in supporting demand. It turns out that at least for now, this claim is more valid than widely believed.
“Not only has the rising share of young immigrants lifted demand for housing, but also, official population projections understate the actual number of non-permanent residents in the country by close to 100,000,” he says.
New immigrants make up 70% of the increase in Canada’s population and as half are aged 25-44, they represent the country’s economic engine with the highest employment levels and the most likelihood of starting families, the report says.
In 2013, non-permanent residents (NPRs) rose 22,000 to 774,000, with an annual flow equivalent to a record-high 30% of new immigrants the country gets each year.
The number of Canadians aged 20-44 rose by 1.1% in 2013, the fastest pace in more than two decades and almost double the Organisation of Economic Co-operation and Development’s growth rate.
Over the past decade, the number of Canadians in this age group has risen 75% faster than in the United States and that is boosting the real estate sector. “Healthier demographics are benefitting trends in household formation,” says Mr Tal.
Despite some concerns of overbuilding in the current housing boom, the ratio of housing starts to household formation – the rate at which people move – is not far from its long-term average of 1.03, indicating no signs of froth.
“The broadly in line aggregate trend in Canada’s homebuilding means that eventual wind down in the current boom won’t have to be as dramatic as feared by some.”
After a hot housing market in 2011 and 2012, condo construction in Toronto has cooled off, while the trend in Vancouver has been broadly flat for the past four years. Only in Calgary do starts continue to show upward momentum. But because those three cities take in roughly half of all new immigrants, they are also benefiting disproportionately from their presence.
The discrepancy in the immigration figures stem from the fact that many researchers use the 2011 census to project household formation, but the census data suggests non-permanent residents in 2011 was close to 400,000 – more than 200,000 below the figures reported by CIC.
Another widely used measure of household formation is Canadian Mortgage and Housing Corporation’sLong-Term Household Growth Projections – 2013 Update, which is based on Statistics Canada’s 2010 population projection, and underestimated the pace of the increase in the number of non-permanent residents, mainly after 2012.
CIBC economists estimate that in 2014 the official population projection undercounts the number of NPRs by close to 100,000. This has important implications regarding the understanding of the pace of growth in household formation in Canada, says Mr Tal.
“The gap is increasingly becoming more relevant for housing demand since a growing proportion of non-permanent residents come from workers and students with a relatively higher propensity to rent.”
The ‘echo generation’ – the children of baby boomers – are buying fewer homes and with foreign workers set to face more barriers to come to Canada, the demand for new housing is likely to slow in future, although it will be partly offset by the country’s plan to raise the immigration quota by 20,000-30,000 a year, with an increased focus on labour market needs.
CIBC, which is Canada’s largest bank, says while it still sees some moderation in the growth of homebuilding, it expects an average rate of 190,000 starts per year up to 2016, more than 10,000 higher than its previous prediction.
By Adrian Bishop, Editor, OPP Connect