Canada is caught in a “population trap” that only exists in up-and-coming markets, according to National Bank Financial Inc. report, wherein the booming population of a country starts clashing with the limits of the infrastructural capability needed to absorb that population.
In such a scenario, the standard of living plateaus because the population is “growing so fast that all available savings are needed to maintain the existing capital-labour ratio,” as per NBF.
The Special Report highlighted that the country’s population growth in 2023 was 3.2%, which is five-fold that of the OECD average. Moreover, all ten Canadian provinces grew at a rate that was at least twice as fast as the OECD, ranging from 1.3% in Newfoundland to 4.3% in Alberta.
“Our country’s current population growth appears extreme relative to the absorptive capacity of the economy and the fact that our workforce is not aging faster than the OECD average.”
“Nowhere is this absorption challenge more evident than in housing, where the supply deficit reached a new record of only one housing starts for every 4.2 people entering the working-age population (compared to the historical average of 1.8).”
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Although Ottawa has introduced recently introduced programs to increase housing supply, Canada would be required to double its housing construction capacity to roughly 700,000 starts per year to meet current demand and reduce shelter cost inflation – an unattainable goal.
Either way, Canadian policymakers need to recognize, as per the report, that population growth is an impediment to the country’s economic well-being. Real GDP per capita being at a standstill for six years is a case in point, and is not simply a result of a lack of housing.
The collapse of Canada’s capital stock per capita close to 1.5% in 2023 means that the Canadian population is growing so rapidly that Ottawa does not have enough savings to stabilize its capital-labor ration and achieve an increase in GDP per capita.
This marks Canada’s first population trap in modern history.
“More worrisome is the fact that the decline is not simply due to a lack of housing infrastructure. In fact, the private non-residential capital stock to population ratio has been declining for seven years and is currently no higher than it was in 2012, while it is at a record high in the U.S.,” NBF said.
The report suggests that Canadian policymakers should set population goals against the constraint of the country’s capital stock, which goes beyond the housing supply, if housing supply is to be improved. This requires that annual population growth not exceed 300,000 to 500,000 if the population trap is to be escaped.
The suggestion in question may seem rendered redundant when considering the government’s annual immigration levels plan, which is set at 485,000 new PRs in 2024, 500,000 in 2025, and 500,000 again in 2026.
The federal government is, however, working to stabilize the number of immigrants to Canada every year in response to reports of the so-called population trap.
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The Canadian Press reported recently that internal documents from 2022 show Immigration Department employees warning their deputy minister that a large increase in immigration could have dire effects on housing and services access.
These warnings were not heeded to at the time, and the immigration numbers were towered to 500,000 – nearly double the amount in 2015.
In a joint statement from Friday, the Liberal ministers defended this decision by pointing towards the need for post-pandemic recovery in Canada.
“Had we not increased immigration post-pandemic, the economy would have shrunk. Businesses facing an acute labour shortage would have closed. The social services Canadians needed, including in health care, would be further delayed or even more difficult to access,” the statement said.
