Ottawa’s Push for Historic Immigration Could Cause Housing and Infrastructure Crisis, Higher Interest Rates: TD Bank

A family of asylum-seekers from Colombia is met by RCMP officers after crossing the Canada-U.S. border at Roxham Road, Quebec, into Canada on Feb. 9, 2023. Ryan Remiorz/The Canadian Press

The federal government plans to admit 500,000 new immigrants to Canada each year until 2025. A new report warns there will be dire consequences for housing, interest rates, social infrastructure, and the economy if the population boom continues at its current pace.

“Balancing Canada’s Pop in Population,” a report released July 26 by senior economists with Toronto Dominion (TD) Bank, says economists have been warning that Canada’s population surge is lacking balance and throwing the economy off-kilter by straining economic growth, tax revenues, and the social system.

Calling the population surge due to immigration “textbook demand shock,” the report states: “People settling in Canada immediately become consumers in search of everything from housing to new clothes to furniture to cars. Although economists have been pointing to a slowing in per capita spending patterns by households, the aggregate impact is what matters in creating a disconnect with supply, and eventually feeding through to price pressures.”

“The demand shock overwhelms the economy’s ability to rapidly respond,” suggests TD, forcing the Bank of Canada to react with higher interest rates.

The report calls on the federal government to bring “balance” back to immigration policies, which have already increased Canada’s population by 1.2 million in the last year alone—more than double the pace it was in 2019 and prior years.

The booming population—irrespective of its contribution to the labour market—comes “at a cost,” for example, by widening the housing shortfall by approximately half a million units within two years and impacting health care, social services, and infrastructure, it said.

“Recent government policies to accelerate construction are unlikely to offer a stopgap in this short time period due to the natural lags that exist in adjusting supply,” according to the report.

“While population growth is a good thing and a necessary remedy to aging domestic demographics, the benefits erode if it occurs too fast relative to a country’s ability to plan and absorb new entrants within the economic and social infrastructure,” TD said.

The report also said that even if population growth is brought back to the long-term average, there will still be a nationwide shortage of approximately 150,000 homes.

“In other words, housing supply will struggle to keep pace with Canada’s rapidly expanding population under each scenario,” the report states. “A meaningful improvement in affordability will likely remain elusive.”

‘Demand Shock’

TD Bank predicts the Bank of Canada would need to raise neutral interest rates by 50 basis points to keep up with the current levels of population growth, and notes that Canada has steadily increased immigration targets and allowed the entry of non-permanent residents in large numbers to address workforce shortages.

“The speed at which it unfolded was not telegraphed and caught many economists off guard. Evaluations of the future housing stock, be it for ownership or rental, were already pointing to worsening affordability across the country even before this sudden influx,” said the report.

It also flags another issue of health care, noting that in 2019, Canada ranked 31 out of 34 countries in the number of acute care hospital beds on a per capita basis.

“That ranking is unlikely to have improved given the rapid expansion in population despite provincial and federal governments identifying and accelerating the recruitment of health care workers. Infrastructure too needs to expand,” said TD.

The report criticizes the government for failing to put in place “the appropriate infrastructure to absorb this large influx of people,” particularly if Ottawa plans to continue immigration on a long-term basis.