On October 24, 2024, the federal government announced the government’s new 2025–2027 Immigration Levels Plan, a significant shift in Canada’s approach to immigration. It set new, reduced targets for both permanent and temporary residents. Permanent resident admissions, which had been projected to hit 500,000 annually, will now be lowered to 395,000 in 2025, 380,000 in 2026, and 365,000 by 2027.
Additionally, the plan incorporates the first-ever cap on temporary resident volumes, aiming to reduce the temporary population to 5% of the total population by 2026. This will be achieved by measures that tighten eligibility and limit permits for international students, temporary foreign workers, and the spouses of temporary residents, as well as reduce the issuance of post-graduation work permits.
The government estimates these changes will initially result in a slight population decline—around 0.2% in both 2025 and 2026—before growth resumes at 0.8% in 2027.
These changes are likely to significantly reshape the country’s real estate market, particularly in the rental sector, having notable implications for demand in residential real estate, especially in major urban centers.
Temporary Resident (NPR) Reduction and Its Ripple Effects
According to an October 25th Edge Realty Analytics Special Report, temporary residents currently account for 7.3%, or around 3 million people, representing a significant source of rental demand in urban areas. Under the new plan, Canada’s temporary population is projected to decline by over 445,000 annually in both 2025 and 2026, followed by a slight rebound in 2027.
Reduced International Students
By capping study permits and reducing targets further in 2025, the government aims to limit the number of international students, a group that has historically added significant demand for rental housing, particularly in university cities.
Revised Temporary Foreign Worker Program Effects
New caps and higher wage requirements for foreign workers aim to reduce reliance on low-wage, temporary labour. As these adjustments take effect, fewer temporary foreign workers will need rental accommodation.
Stricter Work Permit Policies
Limiting work permits for spouses of international students and temporary workers further reduces the expected population of non-permanent residents who may otherwise affect rental demand.
The rapid scaling back of non-permanent residents signals a potentially substantial demand drop in the rental market. Over the past two years, NPRs contributed nearly 2% to Canada’s annual population growth. A reversal is likely to create supply-demand imbalances in urban rental markets that have seen record-low vacancy rates, according to the Edge Realty Report.
Impact on the Rental Market
A reduction of nearly 900,000 NPRs over two years, if the federal government is successful in this new plan, is expected to curtail rental demand, coinciding with a record level of new rental completions and ongoing construction projects that will further increase rental stock. Projections suggest the total rental housing supply could grow by around 6% by 2027.
If rental demand stagnates or even slightly declines, vacancy rates could rise significantly, impacting the rental market, as increased vacancy rates generally lead to downward pressure on rents as landlords compete for fewer tenants. This impact may be especially felt in cities like Toronto and Vancouver, where international students and temporary foreign workers have historically bolstered demand.
Resale Market and Potential Shifts in Supply
An oversupply in the rental market often spills into the resale market as some property owners choose to sell rather than face prolonged vacancies. The Edge Realty report notes that, in Canada, around a third of home transactions involving a mortgage are completed by investors. A prolonged softening in the rental market could push some investors to offload properties, particularly those with significant debt obligations and limited rental income to cover costs.
If increased numbers of rental properties hit the resale market, it may temper price appreciation in high-demand areas and increase affordability. This potential price stabilization could make the market more accessible, but would also reduce the short-term returns for investors banking on appreciation.
Economic Implications and the Role of Interest Rates
The economic ramifications of Canada’s population strategy are tied to GDP growth, which fundamentally depends on population and productivity increases. With Canada’s productivity levels stagnant, population growth has been the main driver of GDP. The shift toward lower population growth suggests a slower economic expansion, which in turn reduces inflationary pressure. If the Bank of Canada continues to ease rates in response to a slower-growing economy, lower borrowing costs may provide a buffer for property owners, especially those with variable-rate mortgages or upcoming renewals.
While the government’s population projections rely on certain assumptions, the shift in immigration policy is likely to lead to a recalibration across the real estate market.