Ask any real estate developer in any of Canada’s major cities about the risk of overbuilding and the first line of defense would be, immigration and its critical role in supporting demand.
According to CIBC Economics published research last week, it seems that their claim is valid as Canada has more Non-Permanent Residents than the official data shows.
Not only has the rising share of young immigrants lifted demand for housing, but also official population projections understated the actual number of Non-Permanent Residents (NPR’s) in the country, by close to 100,000!
With half of new immigrants in the prime-aged, 25 to 44-year old cohort, immigration lends strength to the nation’s demographics. Prime-aged individuals represent the economy’s engine as those who have the highest employment levels and those most likely to start families.
If Statistics Canada’s population growth projections understate the actual number of NPR’s (students, temporary workers and humanitarian refugees who are currently residing in Canada) so does CMHC’s estimate of household formation. There will therefore be a rental housing demand since a growing portion of the NPR’s come from workers and students with a relatively higher propensity to rent.
This evidence that recent demographic demand for housing has been undercounted suggest that there has been no significant overbuilding. As a result, while we still see some moderation in homebuilding from its recent pace, look for an average rate of 190,000 starts per year through 2016, more than 10,000 higher than the previous projection.
Original article from: CIBC World Markets Inc. /Economic Insights
