Canada's Fastest Growing Cities (Part 2): About to Grow Even Faster

In our last article, we revealed how Canada was the fastest growing of the G7 group of countries and presented top 10 lists of its largest and fastest growing cities…

We touched on the main driver of this national growth – immigration – but in this article we’re going to dive deeper into some of the implications of this high growth, including looking at some of the local factors driving internal population shifts and exploring how Canada is poised to grow even faster.

Local Drivers of Growth

Affordability

In our last article, we described how one of the major impacts of Canada’s population growth has been increasingly unaffordable housing, particularly in its highest cost cities of Vancouver and Toronto. In turn, this has been a major driver of internal migration out of these two major centers.

This has generally resulted in Vancouverites moving to smaller regional centers in British Columbia, and Torontonians moving to smaller centers in Ontario, as well as opting to skip over French-speaking Quebec to settle in smaller centers on Canada’s English-speaking east coast.

COVID-19

However, there has been at least one other factor further influencing this trend in recent years—COVID-19.

While the affordability of Toronto and Vancouver has been eroding for over a decade, the onset of the COVID-19 pandemic threw additional fuel on their already overheated real estate (and rental) markets, which—coupled with a newfound ability to work from home—meant people could move further afield where housing was cheaper while still keeping their higher-paying big-city jobs.

Impacts and Implications

These shifts in population—driven by unaffordability and some of the unanticipated quirks of COVID-19—have had a number of urban impacts.

Starting on a positive note, this growth has breathed new life into a number of Canada’s smaller cities, introducing new residents, development, and economic investment opportunities. But, in turn, it has also negatively impacted their affordability, especially since their housing stock is much smaller and absorbed more quickly than in larger centers.

And, much like their big-city counterparts, other challenges faced by these fast-growing secondary centers include added pressure to construct new infrastructure and public amenities, like transit networks, parks, and schools, to keep up with increasing demand.

As these centers get more expensive, there may even be a knock-on effect as people start looking even further from home for affordable housing, including in some less conveniently located centers, such as in Canada’s sparsely populated far north.

But if these secondary centers can successfully navigate through these growing pains, some of them may very well find themselves amongst Canada’s top major cities in the future—but that may only be if they can maintain their affordability advantage in the first place.

Government Interventions on Affordability

With that said, perhaps the country’s policy makers will successfully intervene before affordability becomes an ever-greater issue?

Housing Demand

Cooling Investment and Speculation

So far, British Columbia and Ontario have made efforts to cool housing market demand, such as by introducing foreign buyer and empty home taxes to discourage speculative real estate investment.

These were first introduced in British Columbia in 2016 and 2018, respectively, but have had minimal impact as prices continued to climb in the years that followed.

More recently, the federal government implemented a 2-year nationwide ban on foreign real estate ownership that took effect on Jan. 1, 2023. But as we approach the end of the year, housing experts are saying the initiative has been ineffective at best.

Mortgage Rates

If anything, it was the Bank of Canada’s interest rate hikes between March 2022 and January 2023, which were originally initiated to combat post-COVID inflation, that resulted in the most measurable drop in homes prices in recent years since it led to rising mortgage rates and reduced real estate speculation.

However, after an announced pause on the raising of rates by the Bank of Canada in January 2023, house prices began to recover and remain near record highs to this day.

Housing Supply

On the supply side, in late 2022, the provincial governments of Ontario and British Columbia both announced new housing strategies that looked to override or bypass local municipal processes to accelerate new housing construction and add more supply.

Ontario

In Ontario, one of the first actions taken by the Provincial government was to open up over 7,000 acres of previously protected land for development—this was in Ontario’s Greenbelt, a large swath of protected agricultural land and natural areas established in 2005 that encircles many of southern Ontario’s major cities—including metropolitan Toronto.

It’s a story for another day, but this resulted in a major scandal for the Provincial government that—after a year of handwringing—ended in the Greenbelt lands being returned to protected area and ultimately didn’t do much to address housing.

British Columbia

In British Columbia, the first concrete action taken by the Province was new legislation announced in November 2023 that forces major cities to allow multiplex housing of 3 to 6 units to be built on all single- and two-family lots.

It’s still too early to say what impact the recent legislation will have, especially since cities will have until June 2024 to implement the changes, but we’ll take a closer look at British Columbia’s strategy in a future article.

While new housing supply has so far been slow to materialize, many critics think Ontario and British Columbia’s new measures will not be enough, citing concerns about the potential for city environmental regulations to be disregarded by the Provinces as well as highlighting a projected shortage of labour in the construction industry, which suggests it may be impossible to hit new provincial housing targets even if the development process can be accelerated or bypassed.

More Fuel on the Fire

Although governments are creating new policies and strategies for addressing affordability, Canada’s housing supply crunch is actually poised to get worse.

While the country experienced high growth—5.2% over 5 years—over the last census period (2016-2021), that growth has actually been accelerating since those census figures were released in 2022.

After a brief slowdown in international immigration at the onset of the COVID-19 pandemic, Canada’s federal government increased immigration targets to 500k (half-a-million!) new permanent residents a year—up from the previous rate of about 300k new residents a year.

This resulted in 2022 seeing Canada’s highest estimated population growth in 50 years as it grew by over 1-million residents, pushing its population to a record high of 40-million residents in 2023.

Given Canada’s housing struggles, it may be a bit confusing as to why the federal government would want to add more pressure to the market, but it would seem they’re betting the economic benefits—such as increasing the country’s pool of consumers, investors, and skilled labor—will outweigh other socio-economic costs.

On a More Positive Note

Affordability issues aside, Canada has otherwise been a prime example for how to do immigration right.

Overall, Canada has successfully cultivated a self-identity of being a polite, welcoming country that embraces multi-culturalism. Cultural friction and racism are still an unfortunate part of everyday life, but, so far, Canada has managed to retain a relatively safe and tolerant society for newcomers that allows them ample opportunities for social participation and economic integration.

And up until recently, most residents have been supportive of continued immigration and the topic of immigration has rarely been a major point of national political debate, especially in comparison to other Western nations—though this may be starting to change.

And so, while the government sees higher growth as an inoculation against the long-term economic impacts of declining fertility rates and COVID-19, such as ongoing labor shortages and the looming threat of recession, at some point soon the country will have to strike a more sustainable balance between growth and affordability, otherwise the quality of life for both current and future residents will ultimately be at stake.

And there are new trends suggesting this is already the case, with Canada seeing rising levels of out migration in recent years.

Let Us Know

Let us know in the comments below if you think Canada’s housing market will ever return to something resembling historic norms, if any of these government initiatives will be successful, or if unsustainable growth and unaffordability may cause newcomers to lose interest in Canada. And if you enjoyed this article, please let us know by hitting “like” and subscribe. Thanks for reading!