Focus
March 10, 2023 | 13:50
On the Move: Assessing Canadian Population Flows
Economics
Economics
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Fixed Income Strategy
Economics
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Fixed Income Strategy
Economics
Economics
On the Move: Assessing Canadian Population Flows |
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Canada’s population surged by almost 900,000 in 2022, the largest raw increase in the headcount on record, and the biggest year-over-year percentage increase since the early-1970s (Chart 1). There is plenty to unpack on the demographic front, but here we turn our attention specifically to the flow of people—into the country, across the country, and within particular regions. |
International ImmigrationIt’s no secret that Canada has seen a significant increase in international immigration flows. In recent decades, a downward trend in the birth rate has meant that net immigration has made up a larger portion of overall population growth (Table 1). More recently, immigration flows have skyrocketed, more than making up for pandemic-era restrictions. The push comes from the federal government’s immigration targets: 465k new permanent residents in 2023, rising to 500k by 2025 (Chart 2). That’s a meaningful jump from the 303k average in the five years before the pandemic, and that level of immigration will add the most to population growth (roughly 1.3 ppts) since the 1950s. These targets cover permanent residents; i.e., people who immigrate to Canada but are not (or not yet) Canadian citizens. Non-permanent residents, such as international students or temporary foreign workers, are a separate category, and were a big driver of 2022’s population surge. It’s worth noting that a portion of this group will often convert to permanent resident status, creating a counted immigrant without physically adding a new body. Elevated international immigration levels come with a purpose, but also a near-term cost. Canada’s population is ageing, and the drain on the labour force is becoming more pronounced with the peak of the Baby Boom now in the 60-65 age cohort. We addressed this in detail recently in a piece titled Workers Wanted: Demand, Demographics and Disruption [1]. A key takeaway is that, even if the job market slackens significantly from a cyclical perspective, Canada’s labour market is likely going to be facing shortages for the decade beyond. Barring a burst in always-elusive productivity growth, that demographic reality will weigh on potential growth. |
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While international immigration is a key mechanism with which to ease those coming shortages and lift potential growth, it’s not as simple as just replacing the numbers leaving the labour force—right now about 300k per year to retirement. Integration of new Canadians into the labour market takes time, and there are often language barriers, skills mismatches or issues with credential recognition—we hear these concerns often in the business community. In the meantime, while the inflation-absorbing effect of higher labour supply takes time to materialize, elevated population flows add to aggregate demand and inflation pressure immediately, while weighing on per-capita growth. Inflation pressure is clear in areas such as housing, health care and various other services where supply and infrastructure can’t immediately keep up. For housing, higher immigration comes as there is already strong demand from the Millennial cohort, the peak of which is now about 32 years old. A recent piece titled Housing Outlook: Testing the Foundation [2], looked at how immigration will interplay with domestic demand. The short takeaway is that pressure is exacerbated in the market today; and as domestic demand begins to roll over in the years ahead, high immigration could forestall what would otherwise be a coming lull for housing demand in Canada akin to the 1990s. |
Interprovincial MigrationCanadians are also moving around the country in numbers not seen in half a century. In the four quarters through 2022Q3, Canada saw almost 400k people move to a new province, the largest such flow since 1976, and about 125k more than the pre-COVID run rate. At fully 1% of the population, these flows are not to be overlooked, even if they are dwarfed by international immigration rates. |
Alberta and Atlantic Canada are the largest recipients of these flows (Chart 3). In the latest four quarters, Alberta has pulled in nearly 40k people from other provinces, nearing levels seen at the height of their economic booms in 2006 and 2014. Atlantic Canada’s near-30k inflow is far and away a record for that region. Where are they coming from? In a nutshell, Ontario. More than 51k people have left Ontario on net in the past year, a historic outflow for that province. Technically, Ontario’s outflow is smaller than those from Saskatchewan and Manitoba as a share of population, but there’s no doubt the province is losing significant numbers of people and young families. Meantime, neutral migration flows in Quebec are actually a dramatic improvement from perennial net outflows from that province of about 5-10k per year prior to the pandemic. |
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There are a number of reasons why people might move, but we can boil it down to this from an economic perspective: To find a job if they don’t have one; to find a better-paying job if they do; or to attain better affordability, either through housing or taxes. With that in mind, we’ve compiled a rough ranking of 21 larger Canadian cities, weighted to account for these factors based on wage levels, labour market conditions, housing costs and the tax burden. Table 2 on page 11 shows the results based on the latest available data. It must be noted that rankings of this nature can be fraught with subjectivity. For example, one family might place more value on housing costs, while another might pay any price to be in the mountains. But, the relative ranking does indeed shine some light on what’s going on. First, a major difference between now and some past economic periods is that there is high uniformity in labour market conditions across Canada. Jobless rates are near record lows, vacancies are at or near record highs, and wage growth is bubbling. And all of this is largely true from Victoria to St. John’s. This is a stark contrast to past cycles where we’ve seen extreme excess demand in Alberta contrasting with soft conditions in Ontario (e.g., post financial crisis); or outright recession in the Prairie region while Central Canada was running above potential (e.g., 2015-2019). For Canadians, this effectively means that almost any part of the country is fair game to move to from an economic perspective; depending on one's line of work, of course. Housing costs are a much different story and might now be the bigger driver of migration flows. Consider that the average home price in Ontario ballooned $570k (or 125%) higher than that in Alberta by early 2022, the widest valuation gap on record and a stark change from a decade ago when prices sat at the same level. For the most part, Ontario’s population outflows have been destined for Alberta and Atlantic Canada, not coincidentally regions with strong relative housing market value. On the taxation front, which is likely much less important for most, Ontario still looks favourable at the low-to-mid levels of the income spectrum. But for higher-income households, beyond levels where surtaxes apply in Ontario, Alberta’s flat income tax starts to add to that province’s attractiveness. Intraprovincial MigrationThere is also an element of a permanent change in the economy, namely remote and hybrid work, that has facilitated movement around the country. Anecdotally, Calgary, for example, has picked up many remote technology workers from other cities; and smaller towns outside traditional commuting distance have seen an influx of younger families. |
As Table 2 indicates, mid-sized cities now sport a favourable combination of strong job market conditions and relative affordability. Canada’s two largest cities, Toronto and Vancouver, rank in the bottom third as housing affordability (or lack thereof) weighs heavily. Indeed, the data support the notion that young families are leaving the big cities, and in larger numbers than they usually do. Canada’s three largest cities typically see net outflows to other areas of their respective province, with movement pronounced in the 25-to-40 age cohorts (i.e., young families). Those flows have accelerated in recent years (Chart 4), partly because population numbers in those cohorts are swelling, but also because affordability has become even more strained and changes in work patterns are allowing it. |
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Key Takeaways
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Endnotes:[1] Workers Wanted: Demand, Demographics and Disruption. Focus, August 5, 2022. [^][2] Housing Outlook: Testing the Foundation. Focus, December 9, 2022. [^] |