Are Canadian newcomers pushing real estate prices higher? The answer is surprising
A record number of immigrants are slated to arrive in Canada over the next three years, which could shape the country's real estate market, but how exactly? There's a stark difference between what recent newcomers and established immigrants can afford.
Established immigrants are a key group driving housing investment, experts say, and new data from Statistics Canada shows they make up a higher proportion of real estate investors than their share of the Ontario population.
However, according to the latest census, newcomers earn almost 20 per cent less than nonimmigrants, often entering the rental market first.
Only a tiny share of immigrants arrive with enough capital to buy a home at once," said Ricardo Tranjan, senior researcher at the Canadian Centre for Policy Alternatives.
The average income for recent immigrant households, those who landed between 2016 and 2019, is $44,520, compared to $54,450 for the total population, according to the 2021 census.
Recent immigrants rent at twice the average rate in Canada, and just four per cent of new immigrants own a home without a mortgage compared to 25 per cent of the total population.
And roughly 15 per cent of recent immigrants are low income, compared to 11 per cent of the total population, the census found.
In April, the national home price climbed to $723,900, according to the Canadian Real Estate Association (CREA). In Toronto, it's $1.15 million.
There are numerous obstacles to buying a home that immigrants and young Canadians face, said Usha George, academic director at Toronto Metropolitan Centre for Immigration and Settlement.
The cost of living has increased so that little bit of money you've saved gets wiped out," she said. Groceries, transportation, utilities, it's all gone up so much."
Because of this, it can be harder for newcomers to save enough to buy a home, let alone afford their rent, she said. Now, even the rental market has become extremely competitive with some landlords asking for six months rent upfront.
Average rents in purpose-built apartments broke the $3,000 barrier for the first time in the first quarter of this year - the sixth straight quarter in which Toronto-area rents have seen double-digit year-over-year increases, according to research firm Urbanation.
A larger share of new immigrants' income goes toward housing than nonimmigrants because they earn less, said Randall Bartlett, senior director of Canadian economics at Desjardins. Because many newcomers rent first, there's added pressure on the rental market, he added.
Right now they're entering a rental market that is competitive and the inflow of population is adding to that demand," he said.
The surge in demand for rental units results in more investors jumping into the market and taking advantage of that demand, said Bartlett.
This can have negative repercussions as investors can dictate the supply of housing stock, steering investment toward the construction of condo buildings that are more lucrative than purpose-built rentals. Condo units are smaller, built faster and it's easier to recoup the costs, Barlett said.
According to land and commercial registry company Teranet, from 2017 to 2021 investors comprised the biggest buyer segment of residential real estate, accounting for 22 per cent of purchases in Ontario, followed by first-time homebuyers.
We need to incentivize builders to make more purpose-built rentals," he said. Right now there's a missing middle as our condos get smaller and detached homes get bigger. We need more townhouses and larger apartments for newly arrived families looking for housing."
But there's an interesting caveat, experts say, because established immigrants are investors at higher rates than Canadian-born residents, according to the report released from Statistics Canada on Tuesday.
In Ontario and British Columbia, both immigrants in general and established immigrants were overrepresented among investors, relative to their share of the provincial population," the report said.
Immigrants, nevertheless, had a lower average annual income. In Ontario, the average was $80,000 among immigrant investors compared to $100,000 for Canadian-born investors.
One reason why established immigrants are overrepresented as investors is that wealth accumulation for immigrants is more important through home ownership as opposed to other types of assets such as registered pension plans, a spokesperson from StatsCan said.
Tranjan noted the main takeaway from the report is the strong correlation for residents aged 55 and older being overrepresented among homeowners, he added.
In Ontario, 33 per cent of investors are immigrants, while comprising 30 per cent of the population. And 57 per cent of investors are 55 and older, comprising 32 per cent of the population, he said.
Boomers (including immigrants and nonimmigrants) make up the majority of investors. That's the conclusive finding in that paper," he said. Typically the older you are the more savings and capital you have to purchase property.
Economists say that Canada's immigration targets, which are bringing in more skilled workers and higher earners, could push home prices up further long-term, but Tranjan says any price bump would have to do with the salaries available and not immigration status.
The economy has a certain number of high-paying positions; whether an immigrant or Canadian-born worker holds that job has no bearing on what those wages can or will buy," he said.
Clarrie Feinstein is a Toronto-based business reporter for the Star. Reach Clarrie via email: clarriefeinstein@torstar.ca