Will Reduced Immigration Solve the Housing Crisis?

Spoiler alert, the answer is no!

In this conversation, conservative pundit Sabrina Maddeaux and economist Mike Moffatt delve into the recent changes in Canada's immigration policies and their implications for the housing market and population growth.

Sabrina and Mike discuss the significant reduction in immigration targets, the impact on housing prices and rents, and the skepticism surrounding the government's ability to meet these new targets. They also explore the methodologies used by various levels of government to determine housing needs and the political ramifications of adjusting housing targets in response to changing population dynamics.

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Below is an AI-generated transcript of the Missing Middle podcast, which has been lightly edited.

Sabrina Maddeaux: So back in October, the federal government announced substantial changes to immigration programs, although some, like myself, would argue they're not substantial enough. And over the last 18 months, they've also enacted a number of reforms reducing the number of international students, temporary foreign workers, and other non-permanent residents. Mike, how large were these changes in terms of the number of people added to Canada's population every year?

Mike Moffatt: So I think we need to break it down into two components. The first is permanent residency. So that's the people who come over and who can live in Canada as long as they want. And most of them end up living here their entire lives, and many end up becoming Canadian citizens. We had over the last decade, or the government had over the last decade increased the annual target for the number of folks brought in from 250,000 to 500,000 a year. That's being brought back down into the mid-350 range. So that's 150,000 fewer people each year, and that kind of adds up over time.

The even bigger changes are on non-permanent residency. So these are people here on some kind of time-expiring visa. That could be an international student, someone in a work program, like the postgraduate work permit program. It could be a temporary foreign worker, that kind of thing. The absolute number of those folks went from about 1 million in Canada to 3 million in a very short period of time, only over several years. That is being decreased first down to 2 million, and then down even further to the 1 to 1.5 million range. So that's not just that this population is growing. They are going into absolute decline.

So if you put that together, you're looking at almost a couple million people. That we are going from a country that was growing by 1 to 2 million people a year to a country that's, at least for a few years, going to have almost no net population growth. So that's an absolutely massive change.

So as you know, we have a federal election coming up, a new government could change things. But yeah, back in the envelope, I'd say about 2 million people.

Sabrina Maddeaux: Now, the rationale behind these changes was that our population was growing faster than our infrastructure, particularly faster than our housing supply. So now that we've seen population growth fall, and it should fall some more, are we actually seeing any relief when it comes to home prices and rents?

Mike Moffatt: Yeah, we absolutely are. Though you know, naturally, it's hard to isolate effects because, you know, we've seen changes to interest rates and other things in the economy over the last year. So you need a controlled study for this. But if you look at just prices and rents, we are seeing relief in much of the country. So I always got to bring this back to my hometown of London, Ontario, where, you know, we had seen rents go up 10 to 15% every single year for about 4 to 5 years. And a lot of that was driven by big increases in the number of international students admitted to mostly Fanshawe College, a little bit to Western. Over the last year, not only are rents not going up anymore, they've gone down by about 4 to 5%. And it's affected home prices as well, because a lot of what you see in places like London are single family homes get bought up and turned into student rentals. So it affects prices and rents. You know, prices have been relatively flat in some areas actually going down. So it is having an effect. It's not to suggest that prices and rents are going down everywhere. Alberta is still seeing rent increases. A lot of that is from Ontarians moving out there. But absolutely, if you look at the data, that right around the time these first tranche of changes were made, you start to see those rents come down. So it really has made a difference. So you mentioned earlier, kind of as an aside, you did it twice. So you clearly want to talk about this, that you thought the immigration changes weren't substantial enough. So what additional reforms do you think are needed to get the housing market and population growth back in balance?

Sabrina Maddeaux: Yeah, personally, I'd like to see those numbers come down even lower. We have just had such substantial, I'd say, over-immigration over the last several years. And it's so far out of whack with our infrastructure capabilities, particularly housing, but also health care, that I really think we need to get those numbers back down to reality. And I know, for example, federal Conservative leader Pierre Poilievre has actually suggested even further reduced numbers, I think more in the range of $250,000 a year, which even that might be a little bit high in my opinion.

We certainly have some very lofty housing targets throughout the country, but in terms of the housing supply that's actually coming online today and in the next couple years, we still don't have nearly enough homes for anyone. So I would really like to see our immigration numbers come more in line with the actual homes we have for people.

That said, I'm also a little bit skeptical that the Liberals are even going to stick to these immigration targets, because even with these policy changes, the number of non-permanent residents in Canada did continue to climb through the third quarter of 2024. And a lot of their plan hinges on not just fewer people coming in, but actual people who are already here, whether that's on temporary worker visas or student visas, leaving. So their plan requires 2.4 million non-permanent residents to leave or change status over the next two years alone.

And I'm not the only one who's been skeptical about this. Bank of Canada Governor Tiff Macklem has also raised doubt saying, and this is a direct quote, there's uncertainty in just how quickly these things play out. And the parliamentary budget officer, who's a really big fiscal watchdog, has also said there's quote unquote, significant risk to the government's projections, especially those estimated outflows. We're not very good at tracking how many people leave, we barely track it at all.

Actually, that's one of our big problems. And there's been really no plan surrounding how, if they refuse to leave, what are we going to do about it? Are there going to be deportations? Are there going to be policy changes that make it more inconvenient for people to stay if they're not legally here? There hasn't been much conversation around the harsh realities of that.

We've already seen, for example, a lot of student visa holders start to apply for things like asylum, which then allows them, as that system gets backlogged, to stay here several more years if that issue is not addressed. So I'm, you know, I don't think the numbers are small enough to begin with. But even going on this announcement, I'm very, very skeptical that we'll actually hit these targets.

Mike Moffatt: So yeah, I think all of those are legitimate concerns. You know, I would point out that the federal government is doing things like making it more difficult for international students to apply for asylum, basically saying like, look, if you didn't apply on the front end, you can't kind of then turn around and do it on the back end. So, you know, they are making some reforms in that area. But I think skepticism is warranted that governments, not just the federal government, but provincial governments as well through the International Student Program, kind of let these things get out of hand in the first place. So I think it's fair to say, okay, you know, are they the ones necessarily able to clean up this mess when they let it get out of hand in the first place? I think that that's absolutely fair. You know, and I, you know, my position, I think, is a little bit different than yours. You know, I'm more on board with the increased population growth. And I tend to view it from the other lens. Like, let's figure out how we can build more housing and schools and get more doctors and that kind of thing. But overall, you know, I can't disagree with your skepticism.

Sabrina Maddeaux: I do want to bring it back to the Ontario election campaign we just saw. Doug Ford was noncommittal on whether he would stick to Ontario's goal of 1.5 million new homes. Now, maybe this is an out for him because Ontario is pretty darn behind on building. But I can also see an argument that this target was made before new immigration targets and policy were announced. So this got me thinking, just how do various levels of government, federal, provincial and municipal, come up with these numbers to figure out how many homes we need long term?

Mike Moffatt: Yeah, this is a great question. And, you know, unfortunately, I'm partly responsible for this because I was a guy, we did a report that was funded by the Ontario Home Builders years ago, advocating that Ontario needed to build a million homes in 10 years. And that was before many, many of these changes. And after that report, causation isn't correlation, so I can't necessarily take credit for all of this, but we have seen provincial and federal governments make all kinds of targets.

So you've got the federal government talking about, you know, 3.9 million homes. Ontario talking about 1.5 million. Other provinces have had those. CMHC famously talked about needing over 5 million. And the challenges there is the methodologies that they use are very opaque. They basically don't tell anyway. It's a classic Canadian problem. It's the kind of thing that drives Meredith or producer Meredith up the wall. There's not a lot of data. There's not a lot of transparency around methodologies.

Municipalities have been doing these kind of housing analyses for much longer. Because they basically have to. They inform kind of official plans. They go, okay, you know, how much land do we need for our city to grow? That kind of thing. They help set development charge rates. Because development charge rates are in part going, okay, how much infrastructure do we need to build divided by the number of homes? And that sets your DC rate. So municipalities have been doing this a lot longer. So there's a little bit more transparency there. But even for them, I mean, essentially what they do is they hire some third-party guy, somebody like me or us, to run the numbers. And naturally, those folks don't like to tell you what's in the secret sauce, right? This is kind of proprietary information. So it's a real problem. I think that governments at all three orders are making all of these housing targets without really telling us, okay, where are you getting this? And what are you assuming? And what are you not? So it's an area where I think there needs to be significant reform.

Sabrina Maddeaux: Now, I know you also have your own model of forecasting housing needs. How does that one work?

Mike Moffatt: Yeah, so we're actually transparent here. Probably that doesn't help us any because…anybody can steal what we do. So it's probably costing us hundreds and thousands of dollars. So sorry, Sabrina and Meredith, I'm taking money out of our pockets. But we have this thing called the RoCA Benchmark. And basically what it does is it looks at how much housing did we have in Canada in 2016 in every province outside of Ontario and B.C.? We excluded Ontario and B.C. because those two places had housing shortages then, but most of the rest of the country was fine. We said, okay, how many homes did they have relative to the population, but the age distribution of the population? Because we know that a 23-year-old needs a different home than a 63-year-old, than a 3-year-old. So we look at all of that. We say, okay, let's assume that Canada was in relative balance outside of those two provinces in 2016. Then we say, okay, how many new people are we bringing in? Let's apply this formula, which you can find on the Missing Middle website. Anybody can use. And that comes up with our projection of how many homes that we need.

Sabrina Maddeaux: So let's say for a second, I'll put my skepticism aside, that population growth will be lower in line with these targets. Do we still need to build as many homes now?

Mike Moffatt: And the answer is no. So the last report that we put out for Ontario said that we need 1.7 million. We actually said that Ford's numbers were too low, just given how much things have grown. We re-ran the numbers. We'll have those on the Missing Middle substack. We're saying that it's now down closer to about 1.4 million. And we did the same thing for Canada, the nation as a whole. The federal government says that we need like 3.9 million. We re-ran the numbers and said, actually, it's about closer to 3.1 million.

Now, interestingly, Immigration Minister Mark Miller, when he made these changes, said that the changes will mean that Canada will need 670,000 fewer homes than before. I have no idea where he got that number. And obviously, you know, Sabrina points out, you know, okay, they have to implement it correctly. But we ran the numbers and, yeah, we're finding something in the same ballpark. Our number was closer to about 750,000. But it's in line with our estimates. So the short answer is yes, this actually does reduce housing demand quite a bit. But we still need a lot more homes, even if we're going to maintain the level that we're at.

Sabrina Maddeaux: Absolutely. Now, with that in mind, Doug Ford sure seems on his way to abandoning the 1.5 million home target, if not officially, then in practice. Do you think he should?

Mike Moffatt: Well, I don't think they should get rid of it entirely. And I get why they are. Because last year, they got nowhere near their number. The first couple of years, they were close. Because how the targets worked is they had annual targets. They increased over time. So the first couple of years, they were relatively close. So they started counting things like long-term care beds and stuff like that as a house. You know, they put their thumb on the scale. But they could do that and get close. Now, you know, not only are they having to put their thumb on the scale, they're having to stand on the scale and jump up and down on it.

Sabrina Maddeaux: Is that a treehouse in your backyard? Add one more home.

Mike Moffatt: Well, yeah, no, exactly. The treehouse in my backyard, you know, baby turtle, that's a house, comes with its own house. Like it's just, you know, all the stuff they were having to throw in there. It was absolutely ridiculous. But that said, no, I don't think they should get rid of it. I think it has value. I think it's fair for them to revise it downward. I would say $1.4 million. They would probably go lower than that.

But I would also like to see it revised in another way. You and I in this episode, we've just been talking about a number of homes, like 1.4, 1.7, 3.9. And that treats all homes as identical, right? So you could have a tiny studio condo on the 34th floor of some, you know, high-rise. You know, you're treating that the same as a three-bedroom suburban home. They're not the same. They don't house as many people. And in Ontario, we've been pretty good at building those small high-rise apartments. We have a massive shortage of family-sized homes.

So if, you know, I was somehow made Housing Czar of the Ford government - which is never going to happen, but if I were - I'd say, no, let's keep the targets. Let's make them a little bit more granular. So we're not doing like a home is a home is a home. But let's say, okay, you know, we need this many apartment units, you know, based on the age of the population. But we need, we really need more family-sized homes, the kind of place where you have enough bedrooms for the kids. You could, you know, have the kids go outside and you can still see them on the lawn, that kind of thing. We need to have that granularity. So, you know, we've gone from, you know, me working for the Ford government, which, again, is not going to happen. But now, you know, you might have a better chance here.

From a political strategy perspective, how do you see housing challenges playing out in, let's say, the upcoming federal election? Obviously, we just had an election here in Ontario. We won't have one for four years. Well, I might have said that four years ago and proven wrong, but we might not have one for a while. Do you see political risks for governments, either it's the federal government or any of the provinces, if they start to back away from their housing targets?

Sabrina Maddeaux: Oh, yeah. There are huge risks if you start to back away from the housing targets because they're not meeting, they're not even close to meeting the ones they already have. And voters, especially young people, are so sensitive to, well, politicians took so long to even acknowledge the crisis and come up with some, you know, half-baked solutions. And then they often don't follow through on those solutions. And we're really not seeing any substantial change in affordability across the country. So anything that looks like they're backing off their commitment to housing and to young people in particular is going to be treated, I think, responded to with a lot of frustration and rage and disillusionment. And we already, especially younger Canadians, don't feel that politicians are looking out for their best interests and say one thing and do another. And this would just play into that.

So while there might be some, you know, slowing in our population growth, when we're talking about changing these targets, even [if] you're talking about a few hundred thousand homes, is that enough to publicly change your messaging on how many homes you want to build and not be as ambitious? I don't think so. I think you keep these targets big and you actually try to get to them and meet them.

And you know what? If population projections do change so drastically within the next couple years, we're talking about probably four-year terms coming up, like you said, for Doug Ford and potentially whoever wins the next federal election as well.

So maybe there's a conversation once conditions start to change on the ground down the road, but right now you've got to prove that you're committed to housing and affordability and cost of living and backing off any of these publicly stated targets is not going to go over well with voters. So we'll see what they actually end up doing.

Thank you everyone so much for watching and listening, and to our producer, Meredith Martin.

Mike Moffatt: And if you have any thoughts or questions about how many homes we need or doing population forecasting models in Microsoft Excel, please send us an email to [email protected]

Sabrina Maddeaux: And we'll see you next time.

Additional Reading that Helped Inform the Episode:

Canada Needs to Build 3 Million Homes in 10 Years to Solve the Housing Crisis

'Highly unlikely': Trudeau's immigration plan hinges on millions of people leaving

Baby Needs a New Home: Projecting Ontario’s Growing Number of Families and their Housing Needs

This podcast is funded by the Neptis Foundation

Brought to you by the Missing Middle Initiative