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Newcomers Account for One-Fifth of Housing Demand

Happy couple look at paperwork and a laptop in their bright home

For those who believe that immigrants to Canada are driving up the country’s housing demand and worsening affordability, here’s new data to mull over.

A recent poll commissioned by Royal LePage shows that one out of every five homes is being purchased by new foreign settlers. These newcomers (defined as those who have arrived in Canada within the last 10 years) represent 21 percent of total home sales and are expected to purchase 680,000 homes over the next five years if immigration levels remain the same.

The survey found that among newcomers who buy, they spend an average of three years in the country before making that home purchase.

And when they do buy, more than half (51 percent) opt for a detached house, while 18 percent end up buying a condo, 15 percent purchase a townhouse and 13 percent buy a semi-detached home.

"It used to be that an immigrant got on a ship and arrived in the new land and they really didn't know what they were getting into,” Phil Soper, president and CEO of Royal LePage, said in an interview with CBC's Radio-Canada.

“With the internet, of course, people understand the economies, the housing markets, the job markets of the regions that they are arriving in," he said. "If they choose a relatively expensive part of the country, like Vancouver, they probably have the means to live in Vancouver."

The survey also found that 82 percent of newcomers choose to stay in their first city of residence, which is typically one of the country’s major urban centres. That generally hasn’t helped the housing affordability problem—which so many Canadians face in those cities.

Accommodating the Extra Demand

“Canada is currently seeing the strongest rate of population growth in a decade, and increased immigration is the major contributor to that growth,” said Will Dunning, Chief Economist for Mortgage Professionals Canada. “As a result, we need to produce more housing.”

Based on the current rate of population growth, Dunning said Canada should be averaging “at least” 240,000 new dwellings constructed each year. Actual production is substantially lower, with the country on track to add a total of 210,000 dwellings for all of 2019.

“This inadequate supply will add to the supply pressures that are already being experienced,” he said. That drives up home values and mortgage costs, other things equal.

Policy-makers are loathe to cut back on immigration, however, as it supports economic growth they argue. It’s also not politically rewarding to oppose it.

Hence, would-be homebuyers may need to keep competing for housing with newcomers for years to come.

Mortgage Options for New Settlers

While securing a mortgage as a new immigrant can be challenging, the survey noted that three quarters (75 percent) of newcomers arrive with savings or cash to help buy a home.

“Depending on the region of the country, almost all newcomers arrive with the necessary funds to purchase...," Soper said in his interview with CBC Radio.

However, with no or little credit history in Canada, the road to homeownership has some potholes. This one factor, among others, explains the low homeownership rate among newcomers of just 32 percent (vs. 68 percent for all Canadians).

Most conventional mortgage programs aren’t available to recent immigrants. The ones that are require minimum down payments of between 20 and 35 percent, often closer to 35.

Applicants must also generally have sufficient income provable to the lender’s satisfaction with three-months (minimum) of full-time employment in Canada. But there are exceptions to this if the interest rate is no object.

For those conventional borrowers without standard qualifications, there are still options. One such program is the Canada and Mortgage Housing Corporation’s Newcomers program, which is accessible to both permanent and non-permanent residents. It lets qualified immigrants put down as little as 5 percent on a new owner-occupied purchase. Talk to a mortgage broker or lender for details.