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The Canadian government has announced a plan to reduce immigration in response to economic challenges, particularly those affecting housing availability and costs. This policy will lower the cap on permanent residents from 500,000 in 2025 to 365,000 by 2027, while also capping temporary residents at 5% of the population. The government aims to introduce stricter controls on temporary foreign workers and international students, resulting in an anticipated decrease of 900,000 newcomers by 2026 and a projected 0.4% population decline, followed by gradual growth in 2027.

This change is expected to impact Canada's rental market, which has seen high demand from temporary residents and international students. The reduction in immigration could ease rental demand, particularly in cities with a high concentration of international students, like Toronto, where rental vacancies are predicted to rise due to new condo completions. As vacancies potentially increase above 3%, rental prices could stabilize or even decrease, though investor interest in rental properties may decline amid lower demand.

In the housing sector, a slowdown in immigrant household formation could narrow the gap between housing supply and demand. Nearly 400,000 fewer households are expected to form over the next three years compared to previous projections, which could help Canada meet its housing targets. However, the housing market may not cool immediately, as factors like high construction costs and sustained interest from long-term immigrants continue to drive demand for affordable homes.

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