Trudeau immigration policy worsens affordable house crisis: Rosenberg

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For the housing market to normalize, house prices would have to correct by almost 30%, says David Rosenberg

Published on May 03, 2023 • Last updated 5 hours ago • 2 minutes read

Economist David Rosenberg says Canada lacks the housing supply to absorb an influx of immigrants. Economist David Rosenberg says Canada lacks the housing supply to absorb an influx of immigrants. Photo by Mark Sommerfield/Bloomberg

Ottawa’s lofty immigration targets are exacerbating Canada’s housing crisis, which could create an “unstable situation” and potentially jeopardize Liberal re-election, according to Bay Street economist David Rosenberg.

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“A nation where people in their 30s are being pushed out of the housing market because of a long period of excessive house price inflation that is the result of federal government policy is not a very happy nation,” he said in his widely read Breakfast with Dave Newsletter on March 3 .May. “It will all come out in the next elections and if I were in opposition I would play that card.”

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Canada already had a demand-supply imbalance before Prime Minister Justin Trudeau’s administration announced updated immigration targets of 500,000 new arrivals a year, Rosenberg said.

Accelerating population growth, which added a record more than a million people last year, is helping to sustain inflation and prevent the Bank of Canada’s rate hikes from dampening the housing market, he said.

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Home prices, meanwhile, are starting to rise again, adding to inflationary pressures as the population-to-housing stock ratio is 40 percent above historical norms, Rosenberg said.

In April, Toronto home prices rose 4 percent month-on-month, the third straight monthly gain, taking the median home price to $1.15 million, according to the Toronto Regional Real Estate Board.

“The problem is that the country doesn’t have enough supply, particularly when it comes to housing, to absorb this immigration-driven population growth without further straining the tight housing market,” Rosenberg said.

To make matters worse, Canadian household incomes are becoming ever tighter and the debt-to-income ratio has reached “record levels” of 180 percent, he said.

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Rosenberg said the Bank of Canada was unlikely to hike rates again, so Canada Mortgage and Housing Corp. “Must rock the rocks to begin tightening mortgage lending and alleviating demand pressures through non-price rationing of available credit.”

For the housing market to normalize, home prices would have to correct by almost 30 percent, the central bank would have to cut the federal funds rate by two percentage points, or incomes would have to rise by 40 percent, he said.

Current immigration targets stand in the way of falling home prices and the Bank of Canada is unlikely to cut interest rates to that level as inflation is still above its target range of 1% to 3%. As for income, “no way, no how are incomes going to boom by 40 percent in the near future,” Rosenberg said.

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“What is needed is for the BoC to allow lower interest rates, but what that needs is tax and regulatory policies that encourage a return to more reasonable house prices (sorry, existing homeowners – your net worth must go down) and sustained low inflation (the counteracts Ottawa’s policies on spending and immigration)”.

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