Thoughts

June 21, 2024 | 13:19

Canadian Housing: Migration Matters

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

On April 1, Canada’s population topped 41 million for the first time ever. The increase of almost a quarter million people was similar to the prior quarter. The yearly rise of 1.27 million was the most on record, while the percentage gain of 3.2% is the largest since 1958 and more than double the historical mean. Net international migration of 1.24 million drove almost all the rise, with two-thirds (828,000) propelled by temporary immigration. If, as planned, the federal government slashes the number of temporary immigrants from 6.8% of the population to 5% within three years, then overall growth will slow to around 1%. A growing population propelled by permanent immigration targets of half a million per year will still support the housing market, but in a much more sustainable manner. Builders will have a decent chance of keeping up with household formation, reducing the risk of markets overheating and prices overshooting income growth.

Poor affordability, namely in B.C. and Ontario, is not (yet) having a serious effect on international migration. Ontario’s population grew 3.5% in the past year and B.C.’s rose 3.3%, both much faster than usual and still leading all provinces except for Alberta, whose population exploded 4.4%, the most since 1981. Ontario and Alberta’s population growth is about double the long-run norm. All provinces are attracting more international migrants than usual, even pricey Ontario (net 93,000) and B.C. (40,000), with Alberta (33,000) punching above its weight.

But regional affordability differences are influencing where migrants, including longtime residents, eventually end up. The biggest increases in population relative to historical norms are in Saskatchewan, Manitoba, Quebec, and three Atlantic Provinces. What do all six regions have in common? Still-decent affordability. The sole exception is Newfoundland & Labrador with still subdued population growth of 1.0%, though that’s twice the norm. A total 356,000 people moved between provinces in the past year, also more than usual. This is where differences in housing costs come to the fore. Ontario had a net outflow of 32,000 people, trending at the worst levels on record, while B.C. lost 10,000 folks to other provinces. The hands-down winner of the interprovincial migration sweepstakes is Alberta with a net gain of 53,000, tracking the most on record. And it’s no coincidence that the biggest contributor to this gain is people leaving B.C. and Ontario. More Canadians are also moving to Atlantic Canada. While N&L did see a small net outflow, this followed a rare inflow in the prior two years. Quebec, Saskatchewan and Manitoba also lost residents to other provinces, but Quebec’s net outflow was much smaller than usual.

Migration into affordable regions might continue for a while. As we discussed in last week’s Pathways to Affordability for Canada’s Housing Market, barring a steep decline in home prices or interest rates, restoring affordability in B.C. and Ontario could take several more years. Not surprisingly, regions where people are drawn to inexpensive housing are still seeing price gains, despite high interest rates. New Brunswick leads the way with benchmark prices up 11% y/y to May, followed by Alberta’s 9% advance. By comparison, prices are up just 1% in B.C. and down 3% in Ontario. People are driving far or even flying to qualify these days, and their decisions to relocate could help narrow the wide gaps in regional affordability.