Global housing issues crush immigration growth

NEW YORK: Across much of the developed world, one of the most dependable drivers of economic growth is faltering.For decades, the rapid inflow of migrants helped countries including Canada, Australia and the United Kingdom stave off the demographic drag from aging populations and falling birth rates.

That’s now breaking down as a surge of arrivals since borders reopened after the pandemic runs headlong into a chronic shortage of homes to accommodate them.

Canada and Australia have escaped recession since their Covid contractions, but their people haven’t with deep per-capita downturns eroding standards of living.

The UK’s recession last year looked mild on raw numbers but was deeper and longer when measured on a per-person basis.

All up, 13 economies across the developed world were in per-capita recessions at the end of last year, according to exclusive analysis by Bloomberg Economics.

While there are other factors, such as the shift to less-productive service jobs and the fact that new arrivals typically earn less, housing shortages and associated cost-of-living strains are a common thread.

So is the immigration-fuelled economic growth model doomed? Not quite.

In Australia, for instance, the inflow of roughly one million people, or 3.7% of the population, since June 2022 helped plug a chronic shortage of workers in industries such as hospitality, aged care and agriculture.

And in the UK, an economy near full employment, arrivals from Ukraine, Hong Kong and elsewhere have made up for a lack of workers after Brexit.

Skills shortages across much of the developed world mean more, not fewer, workers are needed.

Indeed, the US jobs market and economy are running hotter than many thought possible as an influx of people across the southern border expands the labour pool, even as immigration shapes up as a defining issue in the November presidential election.

While the US has seen a widely-covered surge in authorised and irregular migration, the scale of the increase actually pales in comparison to Canada’s growth rate.

For every 1,000 residents, the northern nation brought in 32 people last year, compared with fewer than 10 in the United States. Put another way: Over the past two years, 2.4 million people arrived in Canada, more than New Mexico’s population, yet Canada barely added enough housing for the residents of Albuquerque.

Canada’s experience shows there’s a limit to immigration-fuelled growth. Once new arrivals exceed a country’s capacity to absorb them, standards of living decline even if top-line numbers are inflated.

The Bank of Nova Scotia estimated a productivity-neutral rate of population growth is less than a third of what Canada saw last year, which would be more in line with the US pace.

So even as that record population growth keeps Canada’s gross domestic product (GDP) growing, life is getting tougher, especially for younger generations and for immigrants such as 29-year-old Akanksha Biswas.

Biswas arrived in Canada in the middle of 2022, just as per-capita GDP started plunging amid the start of the post-pandemic immigration boom and the Bank of Canada’s aggressive interest rate tightening cycle.

The former Sydneysider moved to Toronto for what she believed would be a better life with a lower cost of living and greater career prospects. Instead, she faced higher rent, lower pay and limited job opportunities.

“I actually had a completely different picture in my mind about what life would be like in Toronto,” said Biswas, who works in advertising.

“Prices were almost similar, but there’s a lot more competition in the job market.”

Canada’s working-age population grew by a million over the past year but the labour market only created 324,000 jobs.

The upshot is that the unemployment rate rose by more than a full percentage point, with young people and newcomers again the worst hit.

Biswas spends more than a third of her income on the monthly rent bill of C$2,800 (US$2,050), splitting the cost with her partner. She’s dining out less and also pushing back plans to have children or buy a home.

“I don’t see my future here if I want to raise a family,” she said.

While millions of Americans also face a housing affordability crisis, their real disposable income growth has stayed above the rise in home prices over much of the past two decades.

Not so in Canada. The median price for homes in Toronto is now C$1.3mil, nearly three times that of Chicago, a comparable US city.

The chronic underbuilding of homes and decades of continuous rises in prices has drained funds from other parts of the economy towards housing.

That lack of investment in capital, combined with firms’ focusing instead on expanding workforces due to cheaper labour costs, has driven down productivity, which the Bank of Canada said is at “emergency” levels.

Growing anxiety around the housing crunch forced Prime Minister Justin Trudeau’s government to scale back on its immigration ambitions, halting the increase of permanent resident targets and putting a limit on the growth of temporary residents for the first time.

Canada’s goal is now to cut the population of temporary foreign workers, international students and asylum claimants by 20%, or roughly by half a million people, over the next three years.

That’s expected to slash the annual population growth rate by more than half to an average of 1% in 2025 and 2026.

Meantime, Biswas and her partner are calling it quits on their Canada experiment and moving to Melbourne, where they reckon they can afford a two-bedroom apartment for less than what they paid for a one-bedroom space in Toronto.

But life won’t be easy Down Under either as many of the same strains are playing out, with Australia facing its worst housing crisis in living memory.

Building permits for apartments and town houses are near a 12-year low and there remains a sizeable backlog of construction work, largely due to a lack of skilled workers.

The government has tried to plug the labour supply gap by boosting the number of migrants, only to find that’s making the problem even worse.

Just like Canada’s experience, the ballooning population is not only exacerbating housing demand, it’s also masking the underlying weakness in the economy.

GDP has expanded every quarter since a short Covid-induced recession in 2020, yet on a per-capita basis, GDP contracted for a third consecutive quarter in the final three months of 2023, the deepest decline since the early 1990s economic slump.

In absolute terms, Australia’s per-capita GDP is now at a two-year low, a “material under-performance” versus the United States and an outcome that could spur higher unemployment, according to Goldman Sachs Group Inc.

Angst about the lack of housing, soaring rents and surging home prices has prompted Anthony Albanese’s ruling Labour government to crack down on student visas.

“It has been proven over many many years that there’s a positive to Australia from a high migration intake,” said Stephen Halmarick, chief economist at the nation’s biggest lender Commonwealth Bank of Australia. — Bloomberg