The effects of Covid-19, particularly the plunge in immigration, is slowing Canada’s population growth, with effects for the housing market over the next couple of years, says a new report from TD Economics.
In the first quarter of 2020, Canada’s population growth slowed to its lowest rate in five years, and a critical source of growth — immigration — has dropped steeply since.
In its report, TD said that it expects population growth to stay well below recent rates through 2021.
“While some of this setback is likely temporary in nature, we see the mix of ongoing travel fears, a pandemic-related slowdown in processing times for immigration applications, government travel restriction measures, and an only gradually healing global economy holding population growth well below its pre-virus rate of around 1.5% annually over the next few years,” it said.
This, in turn, will negatively impact the housing market.
“Weaker population growth is a major factor underpinning our downgraded forecasts for home sales, prices and starts across the country through 2021,” the report said.
Initially, the rental market is “likely to feel a large and immediate impact from a population slowdown,” TD said, as new immigrants tend to rent rather than buy.
In time, the homeownership market will also feel the effects of the slowdown, “as fewer newcomers purchase properties and there is less demand for investor-owned rental units,” TD said.
In particular, investors whose rental units are being built over the next few years “will have a much tougher time finding tenants, partly on account of significantly slower population growth,” it said.
“At the same time, falling rents will raise the carrying costs of these properties, financially pressuring owners and likely causing some to sell.”
Weakness in the rental market will spill over to the homeownership market, it said.
Alongside the population dynamics, other factors, particularly higher unemployment, are driving TD’s gloomier view for housing.
“These headwinds will offset various positives for the outlook, including the presence of significant pent-up demand, supportive demographics and low interest rates, resulting in modest price growth in the second half of 2020 and a mild decline next year,” it said.