The effect of Canada’s visa cap for new international students on rents

Canada’s new limit on visas for international students will cool the high demand for rental units and slow the rate of rent hikes, but it won’t necessarily be a big factor in solving the country’s housing affordability crisis, observers say.

“I think what we’ll see is the impact will be somewhat slow and muted,” said Steve Pomeroy, industry professor at McMaster University’s Canadian Housing Evidence Collaborative research network, in a phone interview with CTVNews.ca. Pomeroy is also a senior research fellow at Carleton University’s Centre for Urban Research and Education.

“Capping students and better managing demand will help to slow the rate of rent increases,” he added in an email. “It will not necessarily reduce rents or make them more affordable.”

In order to see lower rents, Pomeroy said, demand has to be reduced and supply expanded to push rental vacancy rates well above three per cent. The country’s overall rental vacancy rate hit a new 36-year low of 1.5 per cent in 2023, according to a Canada Mortgage and Housing Corporation report released Wednesday.

The cap will primarily affect the rental market since international students and temporary foreign workers tend to rent rather than own homes, he said.

 

 

“They’re (the federal government) very late to the game, but they are at least now acting in the right way,” Pomeroy added, referring to the government’s recent measure to curb the surge in foreign students. “I think it’s a positive move for the rental market … because basically, it’s reducing future demand, which in turn, will take the pressure off rents, and therefore we won’t see the very, very large rent increases.”

Immigration Minister Marc Miller announced on Jan. 22 a temporary two-year limit on foreign student enrolment that would cut the number of new permits by 35 per cent this year. The move means Canada will have a cap of 364,000 new permits this year. The permits are valid for three years. More than 900,000 foreign students had visas to study in Canada in 2023 and more than half of them had new permits, The Canadian Press reported. Miller’s announcement came as Canada’s growing international student program strains local housing markets, according to the government.

The 2025 limit on new applications will be re-examined by year’s end. The move is intended to address the problem of institutions and “bad actors” charging excessive tuition fees while increasing the number of international students they are accepting, Miller said.

Bank of Canada governor Tiff Macklem told The Canadian Press that the new cap should help ease pressure on rental costs in the country. Rentals.ca and Urbanation reported that the average asking rent jumped to a record high of $2,178 per month for December.

Pomeroy and some experts cite the large number of foreign students as a big driver of the housing affordability crisis.

“And that’s not being discriminatory. It’s just the absolute quantity, the number of student visas that were being issued in a completely unmanaged system,” he said. “The level of student visas massively exceeded what we really could accommodate in terms of having housing available.”

Robert Kavcic, senior economist with BMO Capital Markets, agrees that the cap will cool rent increases – but not by much any time soon.

“It might take some time for the market to adjust given there is probably already a large backlog of excess demand on the ground today. So it’s unlikely rents will suddenly drop substantially,” he said in an email to CTVNews.ca. “A cap would ease rental demand and take some momentum out of rent increases.”
Cap to ‘slowly make things better’

Still, Kavcic expects the foreign student visa limit will deliver some relief.

“Demand has been allowed to grow much faster than our ability to provide supply. And demand-side measures such as this cap can be implemented much quicker with a much more immediate impact than more supply, which can take years,” he said.

However, Pomeroy said he thinks the visa cap won’t have an immediate impact unless numerous visas are expiring and foreign students are leaving Canada soon, thus creating housing vacancies. Immigration, Refugees and Citizenship Canada wasn’t immediately able to provide CTVNews.ca with that data.

 

 

 

“So I think the new the current approach is it will stop things from getting worse. But it will only slowly make things better,” Pomeroy said.

Prentiss Dantzler, assistant professor of sociology and faculty adviser to the School of Cities at the University of Toronto, also expects rental demand to cool but he thinks the cap won’t adequately address the housing crisis.

“While this may mitigate demand, the supply side still suffers from a lack of affordable housing units and the high rate of market speculation (i.e., houses as for profit-making versus housing as a home),” he said in an email to CTVNews.ca.

For example, he said, newer units being built are much smaller than the older units many international students occupy.

“Many international students live in rooming houses or basement units with some even overcrowding into apartments to have lower housing costs,” he said. “Given the different needs of international students versus other populations (like aging adults or growing families), the housing system does not provide enough housing for all different types of family arrangements.”

 

With files from CTVNews.ca Writer Alexandra Mae Jones and The Canadian Press

This article was reported by CTV News