Canada Tests the Limits of Its Liberal Immigration Strategy

High levels of immigration made Canada the second-fastest growing developed-world economy in recent years, trailing only the U.S., as it competed to attract high-skilled workers from around the world.

Now, the newcomers are starting to strain the country’s ability to absorb them, putting at risk an important engine of the country’s growth.

The country of 40 million people last year welcomed more than one million permanent and temporary immigrants, Statistics Canada said. That influx generated a population growth of 2.7%; the increase of 1.05 million people was nearly equivalent to last year’s increase in the U.S., a country with more than eight times Canada’s population.

In the next two years, Canadian officials say they will boost the number of permanent newcomers by almost a third, with most being skilled migrants such as carpenters, computer scientists and healthcare workers who qualify under a merit-based points system.

The system, touted by Prime Minister Justin Trudeau’s government but first developed in the 1960s, has helped drive economic growth, attract entrepreneurs and fill vacancies for skilled positions. It has been broadly supported across the Canadian political spectrum, with the goal of attracting the world’s best and brightest to Canada.

But the intake of newcomers is increasing so rapidly that analysts and newly arrived immigrants say it is adding fuel to an overheated housing market, straining a stressed healthcare system and clogging up roads in cities unaccustomed to traffic jams.

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The country’s housing prices remain among the highest in the world even after a rapid and hefty rise in interest rates, according to data compiled by the Federal Reserve Bank of Dallas. The price of a Canadian home sits 36% above 2020 levels because residential construction can’t keep up with population growth, analysts say.

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TD Bank economists, in a report last month, forecast that based on current demographic trends, the shortfall in housing units that are needed to keep up with projected demand could roughly double to a half-million units within just two years.

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Historically, newcomers flocked to major cities such as Toronto, Vancouver and Montreal, but they are now also settling in smaller urban and suburban areas.

The total population of Canada’s capital region, around Ottawa, grew by 8.5% between 2016 to 2021, according to the national census, and house prices there surged 84% in the same period, based on data from the Canadian Real Estate Association. In the Kitchener-Waterloo-Cambridge region, a technology and manufacturing hub 70 miles west of Toronto, the population grew 10% to 575,000. In the 2016-21 period, house prices more than doubled.

As immigration has surged, Canada’s gross domestic product per capita—widely used by economists to measure a country’s standard of living—has declined. National Bank Financial said last month that Canada’s per-capita output is on track to fall 1.7% in the second quarter from a year ago, and the Organization for Economic Cooperation and Development predicts Canada’s GDP-per-capita growth could be one of the lowest among developed-world economies over the next four decades.

Canada’s aggressive immigration “camouflaged the real underlying problem in this country, which is a lack of business investment and productivity,” said David Rosenberg, former chief North American economist at Merrill Lynch and now head of Rosenberg Research. This is showing up in everything from stressed public-transportation, roads, healthcare and housing, he said.

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