Ottawa hitting the brakes on population growth by drastically
cutting incoming immigration
has eased the pressure on social and economic infrastructure, according to a
newly released report
from TD Economics.
Last year, notes TD, government policymakers acknowledged that the influx of immigration was too high relative the ability of Canada’s social and economic infrastructure to cope. Unemployment rose more than a full percentage point between 2022-2024, while businesses struggled to keep up with a rapidly expanding supply of workers. Meanwhile, housing affordability was being stretched to its limits.
“In response, the government introduced an immigration plan to right-size non-permanent residents (NPRs) and permanent resident (PR) targets to allow for some ‘catch up’ in the needed infrastructure,” writes Beata Caranci, senior vice president and chief economist, and Marc Ercolao, economist.
“That policy shift is evident by a massive tapering in Canada’s population growth from a multi-decade high of 3.2% in Q2-2024 to just 0.9%.”
Now, the TD economists says, the question is whether the policy shift will achieve the intended outcomes for housing and the labour markets.
“The short answer is yes.”
How has Ottawa’s policy change affected the housing market?
Reducing the number of immigrants can relieve
housing market pressures
a few ways, they write.
In the rental market, drastically slower immigration bears out TD’s softer rent growth forecast of 3-3.5 per cent in 2026, which is roughly half the growth rate of 2024.
Lowering the cap on newcomers has also lowered condo demand for both homeownership and the secondary rental market. It has also caused downward pressure in asking rents across major cities, write Caranci and Ercolao.
The largest shifts were observed in B.C. and Ontario due to a higher proportion of temporary foreign workers and students. Those markets also have the highest supply of condo units where the secondary market was previously attractive to investors.
“Calculating the impact of immigration flows on home prices is a more nuanced exercise. For one, NPRs have limited participation in the ownership market. And when they do, NPRs usually opt for condominium units. So a reduction in NPR inflows carries the greatest weight on this segment of the market.”
Aside from NPRs, write the TD economists, the data shows that recent immigrants are slightly more active in homeownership during their initial years in Canada, with a preference for detached homes. By their fifth and sixth year, they note, immigrant ownership rates tend to converge toward 50/50 toward renting.
Has the shift in immigration policy eased stress on the job market?
Turning to the labour market, an increase in immigration during the pandemic recovery period helped address shortages in key sectors of the economy. In the beginning, Canadian employers showed capacity to integrate the new workers.
However, this capacity was exhausted as labour force growth approached nearly four times its pre-pandemic growth rate, say Caranci and Ercolao. And by the middle of last year, there was plenty of evidence to show labour markets were cooling. Job vacancy rates normalized, employment growth moderated, and the unemployment rate pushed higher.
“Re-adjusting immigration targets came at an opportune time. Employer demand for new workers has recently made a U-turn, with net job losses amounting to 40k positions between July and September 2025. We believe another 40k is still at risk this year. Even so, the unemployment rate is expected to rise only slightly from current levels before gradually decreasing next year because slower labour force growth mitigates a larger jump.”
If labour growth rates of the prior two years were maintained through 2025, “we estimate today’s unemployment rate could have breached 8%.”
“This is a reminder that immigration policy shouldn’t be static,’ Caranci and Ercolao. “Adjustments should reflect changing market conditions and skills demands. In addition, policymakers must be mindful of ‘too much of a good thing.’ Significant immigration inflows within an industry can dis-incent investment by companies in favour of having access to lower cost labour. Finding a reasonable balance requires regular reviews and flexibility to support longer-term economic growth.”
Has there been an impact on consume spending?
Meanwhile, note the TD economists, the effects of shifting immigration flows on consumer spending “proved a surprise.”
During the first half of 2025, aggregate household spending surpassed most forecasts by “not skipping a beat” from the strength exhibited during the previous half-year. Key contributing factors, says TD, include lower interest rates, a drawdown in household savings from elevated levels, a revival of housing demand, and an increase in domestic tourism.
The rapid collapse in population growth should have pushed against these influences to dent spending momentum. However, new immigrants in recent years have “deviated substantially relative to past patterns.”
Of the 1.4 million new NPRs during this period, around 400,000 entered as students. Another 300,000 to 400,000 found employment in low-wage sectors such as food and accommodation, retail services, and administrative roles. This accounts for nearly a quarter of a million newcomers who had less discretionary spending power than the general population.
As a result, the other factors in the economy that boosted domestic spending growth were able to outrun the downward drag from slowing immigration.
The net result has been an increase in real per capita spending after almost two years of decline, putting it on pace to surpass its mid-2022 peak by next year, says TD.
What’s next?
“The federal government’s revised immigration policy is beginning to pay dividends in returning balance to a stretched social infrastructure,” write Caranci and Ercolao.
“All told, these developments are proving timely as the country simultaneously navigates a policy shock from the United States. That shock also serves as a reminder that immigration will need to maintain a crucial role in supporting Canada’s economic resilience.”
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