Quick Takes:
- A decade of record immigration raised headline GDP but strained housing, pushing rent inflation above eight percent and keeping home prices firm despite higher rates.
- New caps on study and work permits are slowing population growth, easing rent pressure, and providing builders with room to close a half-million-unit supply gap.
- Lasting affordability hinges on converting zoning reforms and new funding into sustained construction that boosts GDP per capita, rather than merely pausing demand.
Canada’s post-2014 immigration surge is unmatched in modern national history. Between 2014 and 2023, Canada admitted about 2.98 million new permanent residents and issued roughly 4.4 million new study and work permits, according to Immigration, Refugees and Citizenship Canada administrative data.
The population rose 3.2 percent in 2023 alone, about 1.27 million people, the size of metropolitan Calgary, after expanding at near-record speed every year since 2016. The output could not keep up. Real GDP per person now sits 2.5 percent below its pre-pandemic level. We will examine how the population boom impacted rents, home prices, and GDP, and then assess how the new, sharply lower immigration targets will affect the supply balance.
How much did the boom lift the rental market?
Most newcomers rent first, so the strongest and quickest signal has appeared in the rental market. By 2023, Canada’s purpose-built rental vacancy rate fell to 1.5 percent, the lowest in the 35-year CMHC series, and average advertised rents rose 8 percent year over year, the fastest on record. The Bank of Canada quantified the immediate squeeze. Rent inflation reached 8.2 percent in October 2023, a forty-year high, and staff directly linked the spike to record inflows of newcomers.
A joint Statistics Canada–IRCC study covering 5,827 municipal observations from 2006 to 2021 shows a clear connection between newcomer inflows and rents. Municipalities that experienced larger increases in the number of immigrants who arrived within the previous five years recorded an average 11 percent jump in median monthly rents over the same five-year span, with the effect strongest in the country’s largest urban centres. Expressed nationally, immigration accounted for roughly one-tenth of total rent appreciation during the period and contributed disproportionately in markets that already faced tight vacancy and limited new supply.
What did it do to home prices?
Home ownership effects are less direct because newcomers typically buy only after several years, but the demand shock still matters. The same Statistics Canada study found positive and significant correlations between immigrant inflows and median house values in two of the past three five-year census cycles. Bank of Canada analysis also showed that population growth contributed more to housing demand than to supply during 2022 and 2023, helping to cushion prices against rate hikes. The conclusion is clear: immigration has been a meaningful tailwind.
Contribution to GDP growth
Immigration has been unambiguously positive for headline GDP. A 2023 Bank of Canada simulation concluded that higher immigration lifted the economy’s noninflationary growth rate by expanding the labour pool and boosting consumption. Between 2014 and 2023, newcomers contributed virtually all net labour force growth and a material share of total GDP gains.
Yet that same population surge diluted growth per person. Statistics Canada reports that real GDP per capita declined in five of the past six quarters and now sits 2.5 percent below late 2019 levels, despite the economy’s larger size. The paradox is straightforward. More people raised aggregate output, but because productivity lagged, average living standards stagnated.
The new policy regime and turning down the tap
Concern about housing and per capita prosperity prompted Ottawa’s biggest immigration rethink in a generation. The 2025 to 2027 Immigration Levels Plan trims permanent resident targets and, crucially, imposes hard caps on new study and work permits. RBC calculates that the change should reduce household formation by roughly 46 percent, or nearly 400,000 households, over the next three years. The Parliamentary Budget Officer projects that the move will shrink Canada’s 2030 housing shortfall by 534,000 units, or 45 percent, if population forecasts hold.
The first effects are already visible. Study permit approvals are on track to decline by 47 percent in 2024 compared with 2023, implying tens of thousands fewer international students near colleges and universities. With demand easing, average asking rents rose just 2.1 percent year-over-year in September 2024, the slowest pace since 2021, and even declined in Toronto and Vancouver.
Home price dynamics will hinge on two opposing forces. Slower population growth removes a major source of structural demand, pointing to flatter prices. But lower interest rates—markets expect multiple Bank of Canada cuts through 2025—and the conversion of recent immigrants into first-time buyers could offset part of that drag. Consensus forecasts now anticipate broadly stable national prices in 2024, followed by low single-digit gains in 2025, well below the double-digit increases of 2020 to 2022 but also short of a crash.
Can supply finally catch up?
Lower demand alone does not solve Canada’s housing deficit. Policymakers have paired immigration caps with the most aggressive building push since the 1950s, including a $4 billion Housing Accelerator, $6 billion for housing-enabling infrastructure, the removal of the GST on purpose-built rentals, and multi-billion-dollar top-ups to rental construction loan programs. Provinces are legalizing multiplexes, trimming fees, and fast-tracking approvals. If these measures succeed, rental completions could remain near their 2023 record, and new home starts could return to growth once financing costs ease.
The combined strategy—cool demand temporarily while accelerating supply—should, in theory, restore something like balance by the late 2020s. The Parliamentary Budget Officer nonetheless warns that even after the immigration slowdown, Canada will still need roughly 1.2 million additional homes by 2030 to eliminate the vacancy shortfall. Failure to sustain high construction volumes would leave the affordability crisis unresolved.
Economic growth without the population crutch
Headline GDP growth will moderate as immigration slows. The Bank of Canada's projections already subtract 0.3 to 0.5 percentage points from expected growth in 2025 and 2026 due to demographic considerations. That restraint is deliberate. By allowing housing, infrastructure, and labour market integration to catch up, policymakers hope to convert future expansion into higher GDP per capita rather than simply more bodies. If productivity initiatives succeed and supply constraints ease, per-person output could finally return to its pre-2014 trend after eight stagnant years.
Bottom line
Between 2014 and 2023, immigration powered Canada’s aggregate economy and, by overcrowding a slow-to-build housing sector, helped drive rents to record highs and prevented home prices from falling even as interest rates rose. Rent inflation peaked at 8 percent, and vacancy rates dropped to 1.5 percent during the fastest population growth since the 1950s. GDP expanded in headline terms, but per capita income declined.
The sharp policy pivot includes capping study permits, tightening work visa rules, and encouraging temporary residents to depart. These measures will reduce population growth and, by extension, housing demand. Early data indicate that rents are cooling in areas where student inflows have declined significantly. Over three years, roughly 400,000 potential households disappear from forecasts. That gives builders a window to narrow a supply gap of nearly 500,000 units.
Whether affordability improves now depends less on the arithmetic of lower immigration than on Canada’s ability to convert new policy tools into concrete ones. Zoning reform, faster approvals, and sustained building at historically high levels will determine the outcome. If construction accelerates, rents should stabilize, home prices may flatten, and GDP per capita could finally begin to rise. If not, the country may find that slowing immigration only buys time. The real test will be how efficiently it can build the homes that a growing and prosperous population still requires.