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March 28, 2024 | Amid Canada’s Huge Immigration Surge, Population Growth Hits 3.2%, Fuels 10% Rent Inflation, even as Home Prices Drop

On his site, Wolf Richter slices into economic, business, and financial issues, Wall Street shenanigans, complex entanglements, debacles, and opportunities that catch his eye in the US, Canada, Europe, Japan, and China. He lives in San Francisco.

Canada’s population jumped by 1.27 million people in 2023, to 40.77 million by January 1, an increase of 3.2% from a year ago, the highest year-over-year growth rate since 1957 (3.3%), Statistics Canada said today in its report on the exploding growth of Canada’s population, driven by a huge wave of immigrants; 98% of the population growth came from immigration.

And this sudden population growth has been putting enormous strains on the rental housing market, where rents have spiked, and continue to spike. And it has had a number of other effects that pressure Canadians in their daily lives.

“Since the end of 2020, demographic trends in Canada have shifted significantly. The fertility rate reached a record low of 1.33 children per woman in 2022. Millennials now outnumber baby boomers in Canada, and the labour market has changed, with some sectors experiencing shortages. Many permanent and temporary immigrants came to Canada, including many workers and international students,” StatCan said in the introduction of its press release.

The government of Canada has now responded to the outcry over its immigration policies and the effects they produce, including the spiking rents, by proffering to dial back the number of temporary immigrants allowed into the country.

The year-over-year increases in the past two quarters, at around 3.2%, and even the growth rates in 2022, were complete outliers that no one in the economy was prepared for, and rental housing doesn’t get built from one day to the next suddenly like this.

Of the 1.27 million immigrants added to the population in 2023, 471,800 were permanent immigrants and 804,900 were non-permanent residents (NPRs).

StatCan estimated that 2.66 million NPRs were living in Canada on January 1, 2024, including 2.33 million permit holders and their family members, and 299,000 asylum claimants with or without work or study permits.

And they all have to live somewhere. And this huge and sudden surge in demand for rental housing has caused rents to spike in a historic manner.

Rents spike.

The CPI for rent in February spiked by 10.0% annualized from January. The six-month annualized rent CPI, which irons out the large month-to-month variability, spiked by 10.3%, the worst since 1983.

The rent CPI is a measure of what tenants actually pay in rents, not a measure of asking rents, and includes rents paid by tenants in rent-controlled markets.

The chart below shows the Rent CPI in terms of price level, not percentage change. Compared to a year ago, the rent CPI in February was up 8.2%. Since January 2022, in line with the boom in population growth, the Rent CPI has shot up by 15.8% and has been accelerating sharply in 2023 and so far in 2024, as shown in the chart above:

The Bank of Canada, in discussing its interest-rate-policy decisions and inflation, has been pointing at the surge of immigrants as the source of rent inflation, which has caused services CPI to be stickier and higher than hoped for, even as the homeownership CPI has started to cool a little.

New immigrants largely rent homes when they first arrive, rather than purchase homes, and so home prices have been pressured down by higher mortgage rates that are not compatible with the crazy-high prices in many markets.

Prices of single-family houses have fallen by 15.6% from the peak in February 2022, according to the Home Price Benchmark Index by the Canadian Real Estate Association. In dollar terms, the Benchmark Index for single-family houses has fallen by $145,500 from the peak in February 2022, to $788,800, just above where it had first been in August 2021 (amounts in Canadian dollars).

But there was a wide divergence between the major markets, and between houses and condos in some markets, as we see in our coverage of The Most Splendid Housing Bubbles in Canada:

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March 28th, 2024

Posted In: Wolf Street

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