Romel Dhalla
On The Money


No one wants to admit that immigration, not construction cost, is the primary driver behind the housing supply shortage. Corporations don’t want to upset future customers and politicians don’t want to upset voters, and that’s perfectly understandable. But, neither are doing the country any good by not plainly addressing what everyone is seeing – a historic flood of immigrants that need homes.

Canada has admitted record numbers of immigrants, and that’s not a bad thing. Most immigrants come hungry for work. Many are educated and are a source of much needed skilled labour. Immigrants also bring significant sums of capital to the country that supports economic growth. These aren’t the immigrants of old that showed up on a boat with $2 in their pockets, no sirree. There’s no doubt, Canada has been a primary beneficiary of world-class immigration policies that have attracted quality immigrants.

But, is too much immigration, even of the bougie variety, a good thing? In an economic downturn, I’d say yes it is. For the reasons mentioned above, a reasonable level of immigration works. But, over the past several years Canada has increased both the total numbers of immigrants and also seen a massive increase in student VISAs. The latter is interesting because it points to another issue within our post-secondary education institutions that charge “international” tuition fees, usually at many times the going rate for a Canadian citizen. This has become a cottage industry in and of itself as students, from higher net worth families that can afford it, come here, study some English, transfer gobs of money from back home, and buy fancy cars and overpriced condos (I’m generalizing). After a few years their parents can apply to come over, thus the student essentially serves as an anchor to bring the rest of their family. An expensive way to immigrate. But, for many families, those fleeing China in particular, it made sense. Move to present day and these student VISA applications are now mostly from India, which has overtaken China in both total students and regular immigrants coming into Canada.

According to IRCC (Immigration, Refugees, and Citizenship Canada) the total number of immigrants into Canada has equalled 437,000 immigrants and 807,000 international students in 2022, alone. In a country of 38 million, 1.2 million new migrants needed a place to sleep, food to eat, and jobs to work. On a side note, how interesting is it when you go into any fast-food restaurant and see that a majority of the workers are young Indians. Being of Indian origin myself, I can’t say I mind it. In fact, I actually like that, “Can I please get some Chaat Masala on my fries?” But, there’s no doubt these immigrant labourers are beating out Canadian born and raised kids who would have typically taken those jobs. Back to the subject, RBC recently put out a report that suggested high levels of immigration will lessen the impact on housing prices as higher mortgage rates put the squeeze on buyers. This is a nice way to say that immigrants must buy houses and they will do so at higher prices because … they have to, which isn’t very nice actually. But what else can they do? They have to buy, so they move into what’s available and dry out supply, and housing prices remain high.

The other line of thinking is that the construction industry is responsible for the lack of affordable housing because of labour shortages and higher materials costs. No doubt this does impact housing too, and to a great extent. How can you build an affordable home when the input costs are too high to begin with? To solve for part of the cost, the labour cost component anyway, the federal government believes that a massive influx of immigrants will reduce labour pressure because they will joyfully take all these skilled-labour construction jobs. But, the last time I checked most immigrants do not want to work in labour-intensive jobs. Many are university educated and will seek to bolster Canada’s professional labour pool instead. So, I don’t think we’re going to find a huge number moving to construction labour and thus, I also don’t think construction companies will be able to meet housing demand or be able to lower input costs associated with cheaper labour any time soon.

So, what’s the solution? I think there are two interesting ways to potentially solve for housing. The first and most obvious one is to reduce the number of immigrants coming into Canada. We could actually benefit by increasing the scrutiny, standards, requirements, and cash that immigrants would need, given the immense demand, and attract fewer, higher quality immigrants. Fewer immigrants, fewer places to sleep required. Secondly, given it seems everyone wants to work from home these days, why not encourage that and start rezoning commercial office towers into residential apartments? Think of all the old buildings that have gotten converted into beautiful condos in almost every city imaginable. Why can’t, now somewhat empty, office towers convert into multi-family residential, or mixed-use with some office and some residential so that we start providing an almost ready source of affordable housing (conversion costs are lower than new builds, that’s just common sense) for the masses.

Unfortunately, the government and their advisers don’t see it this way. We are being told that we will break records again in 2023 for total immigrants and student VISAs. So, I’m sorry if you are looking for a home, or even an apartment, as renters are suffering from similar dynamics with extremely low vacancy rates causing massive rent increases across Canada. The bigger question, really, is how will things end up over the next few years? Especially considering that the current situation is untenable, unsustainable, and unaffordable. Something will have to give, maybe break. This does not bode well for Canada’s poor or those with lower incomes. Housing prices will have to come down, one way or another. Let’s just hope that homelessness of those who cannot afford a home aren’t the eventual cure to high prices.

Romel Dhalla, is President of Dhalla Advisory Corp., provides strategic corporate finance advice to companies and high net worth individuals and was a portfolio manager and investment advisor with two major Canadian banks for 17 years. Contact him at [email protected]. Any views or opinions represented in this article are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.