"Ask any real estate developer in any of Canada’s major cities about the risk of overbuilding, and the first line of defence would be immigration and its critical role in supporting demand," CIBC economist Benjamin Tal said in a report Wednesday. "It turns out that at least for now, this claim is more valid than widely believed."
Immigrants already represent about 70 per cent of Canada's population growth at the moment — and half of those who come to Canada are in the prime homebuying age range of between 20 and 45.
But even that large figure underestimates a fairly significant chunk of people who need housing, the bank says.
Tal, along with the report's co-author, Nick Exarhos, note that those official immigration figures don't include other "non-permanent residents," such as students, temporary workers and humanitarian refugees.
Last year, there were 22,000 more non-permanent residents than there were the year before, driving the total to 774,000 in 2013, almost twice the number that came to Canada as recently as 2005.
When economists talk about demand for housing, they use a metric known as "household formation." Simply put, the rate of household formation is the frequency with which individuals — or groups of people like families — decide to seek a place to live that's different from where they are now.
Consider that last year, Canada's population of 20- to 44-year-olds grew by 1.1 per cent. That doesn't sound like a large number, but it's actually the fastest pace we've seen in almost 20 years and is 75 per cent higher than the rate seen in the U.S.
And lately, that tiny but growing population bubble has been largely made up of new Canadians.
"When it comes to measuring household formation in Canada and its implication for the appropriate level of homebuilding, we systematically understate the number of those non-permanent residents," Tal said.- DON PITTIS: Why a housing crash is good (but maybe bad for you)
Tal notes that even Canada's official census data tends to underestimate the actual number of new people coming to Canada. The 2011 census said the number of non-permanent residents in that year was close to 400,000, but that is more than 200,000 below the figures reported by Citizenship and Immigration Canada.
"That’s a huge gap," Tal says.
In some cities, it seems like everywhere you look there's yet another new condo development being built. But on a national level, Tal says the rate of housing starts compared to household formation is actually slightly below its historical average, at 1.03.
That's not to suggest that everything is hunky-dory in condoland.
Tal acknowledges "there are some markets that are seeing more aggressive activity than others," singling out B.C., Alberta and Ontario.
After hot years in 2011 and 2012, condo building in Toronto has cooled off, while the trend in Vancouver has been broadly flat for the past four years or so, Tal says.
"Only in Calgary do starts continue to show upward momentum," he said, "but because those three cities take in roughly half of all new immigrants into Canada, there are reasons to believe that they are also benefiting disproportionately from the demographic boost new Canadians are providing."
There's clear evidence that the so-called "echo generation" — Canadian-born children of baby boomers — are buying fewer and fewer homes. But as long as current immigration trends keep up, there's more than enough demand for new housing to pour cold water on any bubble talk.
As Tal puts it: "The trend in Canada’s homebuilding means that the eventual wind-down in the current boom won’t have to be as dramatic as feared by some."