By Ketki Saxena
Investing.com – In a speech in Windsor Ontario today, Bank of Canada Deputy Governor Toni Gravelle delivered prepared remarks focused on housing and immigration in Canada.
Immigration and Housing in Canada: The Debate
The impact of immigration in Canada - which has soared in recent years, touching over 1 million newcomers in 2022 - has become a contentious issue recently.
While Prime Minister Justin Trudeau’s government maintains that high levels of immigrants are required to offset the impact of an aging population, public perception has become generally more hostile as rent, and the Canadian housing market becomes increasingly more unaffordable.
A lack of housing supply has been a key reason driving housing prices and soaring rents, with an influx of new demand in the form of newcomers to Canada contributing to price pressures.
What did the Bank of Canada Deputy Governor Say?
In his speech, Deputy Governor Gravelle acknowledged that the rise in demand for housing has strained housing markets and driven inflation, but also stressed the positive impact of immigration for Canada in the long run.
Gravelle noted that since the start of 2022, strong immigration has boosted the level of Canada’s potential output by 2-3%.
He also noted that the growth in output is without a material increase in inflation, with the increase to consumer spending from recent immigrants adding less than 0.1% to inflation.
Immigration Puts a Strain on Housing Market
However, Gravelle did acknowledge that newcomers are contributing to some housing price pressures.
“Canada needs more homes,” Gravelle said. “And we need to make our housing supply more responsive to increases in demand.”
Gravelle also noted that increased immigration has contributed to a decrease in vacancy rates Canadian homes available to rent or buy: “When newcomer arrivals picked up sharply in early 2022, that steady decline in the vacancy rate became a cliff.”
“Canada’s vacancy rate has now reached a historical low.”
Housing Inflation in Canada: The Numbers
Gravelle also touched on some of the data outlining housing inflation in Canada.
In October, Shelter price inflation rose to 6.1% on an annualized basis, and contributed 1.8% to that month’s total inflation reading of 3.1%.
Rent inflation accelerated to its highest level in 40 years, coming in at 8.2% in October.
Comments on Bank of Canada's outlook
While Gravelle’s speech was focused on housing and immigration, he did comment briefly on the Bank of Canada’s decision to hold rates earlier this week.
In line with the BoC’s rhetoric to contain expectations of how soon it will begin rate cuts, Gravelle downplayed the progress in inflation.
“We must remember it’s just one month. We need to see further progress,” he said.
He also noted that the BoC is keeping a close eye on inflation expectations, wage growth and corporate pricing behaviour. “These indicators are helping us assess whether inflation is on a sustained path to two per cent. Given the risks to the inflation outlook, we remain prepared to raise the policy rate further if needed.”