One economist says that while Canada’s rapid population growth helped to fill job vacancies after the COVID-19 pandemic, it has also spurred rent price inflation and made housing shortages worse.
In a report Thursday, Andrew Grantham, an executive director at CIBC Economics, said that population growth started as an advantage for Canada’s economy but “‘spiraled” out of control” throughout 2023.
“Population growth led by non-permanent residents initially helped to fill elevated job vacancies coming out of the pandemic, but the surge since mid-2022 has also resulted in housing shortages and rent price inflation,” he said in the report.
Grantham estimates that since 2019, Canada’s population growth has risen by around 1.1 million, or 35 per cent, more than housing availability could accommodate. He added that the increase “has eclipsed labour force needs” by between 200,000-700,000, or between five and 20 per cent.
“That suggests a careful balance exists between taming population growth to ease housing inflation and potentially exaggerating issues of labour shortage and thereby creating inflationary pressures in other areas,” the report said.
However, Grantham also highlighted that given the attention on population growth and housing affordability, “it is easy to lose sight of the positive impact that newcomers into the country are having, particularly in the labour market.”
“As the domestic workforce has aged, participation rates have understandably fallen. For persons born within Canada, the participation rate has declined by almost three per cent since 2015,” he said.
Additionally, Grantham highlighted that non-permanent residents and new immigrants were critical in filling vacant jobs following the COVID-19 pandemic. However, he also noted that the surge in population growth may have been “too much, too soon.”
“Coming out of the pandemic, participation, employment and unemployment rates for newcomers to the country were all better than they were pre-pandemic,” Grantham said in the report.
“However, as the economy has slowed and demand for labour has eased, this group has been the most negatively impacted.”
The new targets on non-permanent residents will bring Canada’s population growth lower if they are met, according to the report, from around three per cent currently to under one per cent in 2025-26.
“While that won’t, by itself, solve the shortfall in new homebuilding relative to population growth, it will help ease some of the most acute pressure and reduce rental price inflation within the Canadian CPI (consumer price index),” he said.
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