The revision to the country’s long-term housing supply needs reflects a 0.2% annual population decrease in each of the next two years, driven by recent changes in immigration policy introduced by the federal government.

Canada’s population is expected to decline to 41.1 million in 2026 from 41.3 million in 2024, marking its first decline since Confederation in 1867.

As a result, Oxford Economics has revised its household formation forecast down from 2.9 million to 2.5 million between now and 2035.

“Overall, this means about 500,000 fewer homes will need to be built to rebalance the housing market by 2035 than we previously estimated,” according to the research paper, authored by economist Michael Davenport and Tony Stillo, Director of Canada Economics at Oxford.

In October, the federal government unveiled its 2025-2027 Immigration Levels Plan, which lowers the target for permanent resident admissions to under 400,000 annually, representing a decrease of more than 20% compared to the previous plan.

The updated plan also sets official targets to reduce the share of temporary residents to 5% of the population by the end of 2026. These new targets are expected to lead to an unprecedented net outflow of 445,000 temporary residents each year over the next two years.

This marked slowdown in immigration levels is expected to translate into 1 million fewer people—or approximately 2%—living in Canada by 2030 compared to previous estimates, Oxford notes.

Not only will this have an impact on housing needs, but Oxford says it will also slow GDP growth in 2025 by 0.1 percentage point to 1.3%, before growing by an average rate of 1.7% in 2026 and 2027, or 0.5 percentage points lower than previously expected.

“We think weaker growth in consumption and housing due to a smaller population will dampen the boost to Canada’s economy from lower interest rates and stronger global demand,” the report reads.

“Less daunting” wave of homebuilding expected over the next decade

The reduction in housing needs over the next decade and beyond is expected to help close the housing supply gap, which has struggled to keep pace with demand in recent years, Oxford says.

“Accordingly, we now project a less daunting wave of new homebuilding in the coming decade,” the report reads, forecasting housing starts to crest just below 300,000 units later this decade, compared to the 350,000 range in its previous forecast.

With new homebuilding having slowed in the second half of 2024, Oxford expects that activity will likely continue to cool through the winter due to the lagged impact of past interest rate hikes and “improving but still-soft” housing demand.

Additionally, escalating building and material costs are leading many developers to delay or cancel new projects, particularly multi-unit dwellings in Toronto and Vancouver.

However, as interest rates continue to decline, building costs stabilize, and government initiatives to address Canada’s chronic housing shortfall take effect, Oxford predicts that housing starts will gradually increase, positively impacting affordability.

“We expect stronger growth in housing supply than demand over the medium term will cause house prices to rise at a slower pace than incomes on average,” the authors write. “However, even with a smaller population over the next two years and slower
population growth thereafter, we still think it will take around a decade to restore housing affordability at the national level.”

Editor's pick housing housing analysis housing crisis housing data housing supply housing supply crisis Michael Davenport Oxford Eonomics tony stillo

Last modified: January 23, 2025