Rents, interest rates could ease with temporary resident targets: BMO economist

The federal government’s decision to introduce targets on the intake of temporary residents for the very first time will have a positive impact on Canada’s rental market and overall housing crisis, according to one BMO economist.

“We’ve been firm in our argument that Canada has had an excess demand problem in housing, and this is maybe the clearest example. Non-permanent resident inflows, on net, have swelled to about 800K in the latest year, with few checks and balances in place, putting tremendous stress on housing supply and infrastructure,” said BMO economist Robert Kavcic in a note to clients on Friday.

For the first time, the Canadian government will set targets for temporary residents allowed into the country.

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Immigration Minister Marc Miller said this is being done to ensure “sustainable” growth in the number of temporary residents coming into Canada.

“Starting this fall, for the first time, we will expand the immigration levels plan to include both temporary resident arrivals and permanent resident arrivals,” Miller told reporters in Ottawa on Thursday.

Miller said as of 2023, Canada was home to 2.5 million temporary residents, who make up 6.2 per cent of Canada’s entire population. Over the next three years, the government plans to bring that percentage down to five per cent.

Kavcic said this would bring Canada’s population growth down significantly.

“If these targets are met, while net births and permanent resident inflows continue as planned, we judge that Canadian population growth could grind down closer to 1 per cent in the coming years from north of 3 per cent today.”

He said this could lead to “less pressure on rents and housing, less stress and inflation in services, and lower interest rates than we otherwise would see if these inflows were to continue.”

Speaking to Global News, Kavcic said this signaled a shift in policy making, with the focus now on lowering demand for housing.

“I think almost all of the policy energy has been focused on the supply side. And a lot of those goals have been well founded and they’ve been noble. But our view all along has been that they’re just not going to work because we can’t build any more than we already are in Canada. We certainly can’t triple the rate of construction to meet this level of demand,” said Kavcic.

According to a recent report, compared with February 2022 — just before the start of interest rate hikes by the Bank of Canada — average asking rents in Canada have grown by 21 per cent or $384 per month.

Miller told reporters in Ottawa Thursday that he will be convening meetings with provincial governments in early May to set targets.

“Provinces and territories know their unique labor needs and capacity, and need to assume responsibility for the people that they bring in as well,” Miller said.

Employment Minister Randy Boissonnault said the government was also changing the way Canadian businesses were hiring foreign workers. The reduction in the number of temporary foreign workers, however, will not be applied to the construction and health care sectors.