How new immigration targets will impact the Canadian housing market

Canada’s record-setting population growth is about to take a breather. Recently, the federal government announced a significant reduction in Canada’s immigration targets for both permanent and non-permanent residents. Under the new plan, the country will admit 395,000 permanent residents in 2025, down from the previous target of 500,000, with further yearly reductions planned through 2027. The temporary resident population will see an even sharper decline of 445,901 in 2025.

Let’s explore how this policy shift will set the stage for a potentially new direction in the Canadian housing market.

How Canada’s housing demand will change

As immigration rates change, so will the demand for housing, reshaping both the rental and homeownership landscapes.

Rental market

With only 15.3% of non-permanent residents (NPRs) being homeowners, the vast majority rely on rental housing, making them a substantial driver of the rental market in urban areas. The reduction of NPRs, combined with a 21% drop in new permanent residents (who often rely on rentals initially), could lead to several key impacts:

• Decreased rental prices: Temporary residents, like international students and temporary workers, often prefer city-center locations for proximity to universities, workplaces, and transit. With fewer NPRs entering the country, demand for rental units in high-density urban areas like Toronto and Vancouver is expected to decline, increasing vacancy rates. In response, landlords may lower rents to attract a broader pool of tenants, potentially easing housing affordability pressures for local renters who have been priced out of competitive markets in recent years.
• Increased long-term tenancy options: As vacancy rates rise, property managers are likely to shift focus from short-term rentals (such as Airbnb properties) to long-term options to secure stable income. This shift could add more long-term rental options to the market, giving renters more stable housing choices. Additionally, neighborhoods previously impacted by tourism-driven rentals may see a decrease in seasonal price spikes.

Homeownership demand

With fewer new residents entering the market, several trends in homeownership demand may unfold:

• Lower demand for entry-level homes: New immigrants often seek out entry-level properties like condos as an affordable first step into homeownership. With a 21% reduction in PRs and fewer NPRs moving toward permanent residency, demand for these properties is expected to decline. This could slow the pace of price growth for condos and similar properties, which may benefit first-time Canadian buyers by creating more affordable opportunities.
• Shift in buyer preferences: As fewer international buyers enter the market, demand may gradually shift from condos to single-family homes, a preference recorded among 64% of potential homebuyers. With less competition from new arrivals, buyers may also have greater flexibility in choosing between property types, potentially driving interest toward detached homes and townhouses.

Despite the anticipated slowdown in demand, there remains a backlog of potential buyers among recent immigrants and PRs who are already in Canada and may be waiting for the right market conditions to purchase a home. This group could still sustain demand for starter homes, particularly if recent rate cuts by the Bank of Canada make homeownership more affordable.

What it means for the mortgage market

While the Canadian Real Estate Association (CREA) estimates a 6.6% rise in national home sales to 499,800 units in 2025, the reduced immigration targets may temper some of this growth. Let’s see how Canada’s immigration news will reshape the mortgage market, influencing both borrower demand and lending conditions.

Variable rate mortgages

Lower immigration levels could soften mortgage demand, especially in densely populated urban areas where newcomers have historically fueled first-time homebuyer activity. That said, reduced immigration could still support borrowing demand among Canadians if accompanied by aggressive rate cuts. 

Should the Bank of Canada implement further rate cuts to stimulate borrowing, variable rate mortgages could see a more immediate reduction. Lowering the overnight rate to a range of 2.25% to 3.25% would make variable rate options more attractive, encouraging local buyers to enter the market even as immigration-driven demand softens. 

Fixed rate mortgages

Fixed rates are closely tied to bond yields, which tend to reflect long-term economic expectations. Bank of Canada Governor Tiff Macklem recently noted, “If population growth comes down faster than we’ve assumed, headline GDP growth will be lower than we assumed.” This tempered GDP growth projection could keep bond yields and, consequently, fixed mortgage rates within a stable or moderately lower range.

Macklem also indicated, "If we’re about right with population growth and household spending recovers more quickly, GDP growth could be higher.” With bond markets signaling a cautious outlook in response to reduced immigration, significant drops are unlikely unless bond yields see a major shift. 

Longer-term effects on the housing market

As population growth slows, the housing market in Canada stands at a crossroads. Let’s explore what it will mean for the future of home affordability and development growth.

• Market stability: With fewer newcomers entering the Canadian housing market, demand for condos and urban property investments may soften, leading to moderated price growth or stabilization in high-density areas like Toronto and Vancouver. This shift may provide a much-needed breather for prospective first-time home buyers who have faced escalating prices and fierce competition in recent years.
• Regional differences in supply and demand: While national trends indicate a slowdown, certain regions, particularly those experiencing interprovincial migration, may continue to see growth. Fast-growing areas in provinces like Alberta are likely to attract internal migrants, sustaining housing demand despite the overall national decline. 
• Construction and development sector: With fewer homes needed in the short term, developers may reconsider project timelines and scale back on new construction initiatives. 

Moreover, lower immigration levels can shrink the construction workforce, as the industry often relies on immigrant labor to fill gaps in skilled trades and labor roles. With fewer new workers entering the labor market, construction companies may struggle to find sufficient skilled labor, leading to delays in project completion and increased costs. 

The bottom line

The federal government's decision to reduce immigration targets is a significant shift for the Canadian housing market. Lower immigration may pave the way for a more affordable housing landscape, but it also poses economic challenges that could impact market dynamics. The interplay of mortgage, immigration, and housing policies will ultimately determine how accessible and affordable housing remains for Canadians.

Also read:

• Canadian CPI falls to 1.6% in September
• Home affordability improved in September following summer rate cuts
• Federal government to allow insured refinances to build secondary rental suites
• Factors impacting affordable housing for first-time home buyers