Canada, known for its welcoming stance on immigration, is now grappling with a critical issue identified by economists as a “population trap.” National Bank of Canada economists Stéfane Marion and Alexandra Ducharme argue in a recent report that the country needs immigration reform to navigate this challenge successfully. Despite the acknowledged benefits of immigration for the GDP, there are concerns that the current influx of newcomers is straining Canada’s infrastructure and hindering improvements in the standard of living.
The Population Trap
The term “population trap” signifies a situation where rapid population growth impedes any increase in living standards. In 2023, Canada experienced a decline in its capital-labor ratio for the first time in its history, according to Marion, the National Bank’s chief economist. This phenomenon is historically associated with emerging markets, making Canada unique in facing this urgency to address its immigration policy to prevent further deterioration in living standards.
Recommended Population Growth Levels
In their report, Marion and Ducharme propose that Canada’s annual total population growth should be limited to a range of 300,000 to 500,000 to avoid falling into the population trap. This recommendation comes in the wake of Canada’s population growing by over 1.2 million in the previous year. The economists argue that adhering to the proposed levels would ensure a more sustainable balance between population growth and the country’s capacity to absorb newcomers.
Housing Market Challenges
One of the consequences of Canada’s high immigration levels is the strain on the housing market. The government has faced criticism, with internal documents revealing concerns from Immigration, Refugees and Citizenship Canada employees about the impact of increased immigration on housing. The housing crisis has become a pressing issue, with experts attributing rising house prices and rents to the government’s immigration policy.
Proposed Solutions and Challenges
The Canadian government has faced calls to reconsider its immigration policies, with some suggesting tying the number of immigrants to the number of homes built. While Immigration Minister Marc Miller acknowledges the need for changes, he highlights the importance of addressing temporary immigration programs that contribute significantly to housing challenges. The proposal to cap international students, who are a substantial source of population growth, has been met with both support and skepticism.
The Road Ahead
Addressing the population trap requires a multifaceted approach. The National Bank economists emphasize the need to recalibrate immigration levels based on current demand and reduce shelter cost inflation. Simultaneously, the government must grapple with the housing crisis, exploring strategies such as increasing housing construction capacity. Finding a delicate balance between welcoming newcomers and ensuring the well-being of current residents is crucial for Canada’s future.
Canada stands at a crossroads, facing the imperative for immigration reform to escape the population trap and address the housing crisis. Striking a balance between economic growth and the well-being of citizens requires thoughtful policy adjustments. The government’s willingness to explore solutions, including potential caps on certain immigration streams, reflects a recognition of the challenges at hand. As Canada navigates these complexities, the nation’s future will be shaped by its ability to adapt immigration policies in a way that ensures sustainable growth and improved living standards for all.
