What is the impact of immigration on PEI’s housing?

Spoiler: Less than you might expect

Non-permanent residents as a share of the population across different PEI communities. On a proportional basis, Charlottetown has the largest international student population in the country (From Census Mapper).

It is no surprise that the Island’s housing crisis is being exacerbated by a growing gap between supply and demand. Population growth is at a near-record rate of 4.6% annually, and fewer than 1,200 homes are getting built each year. The slump is most acute in rental markets, where vacancy rates are around 0.9%. Alternative narratives and scapegoats have been proposed to counter this observation. But at the end of the day, the supply-demand curve is a more direct, simple, and accurate explanation of why housing is becoming so out of reach for new and lifelong Islanders alike.

But the most pervasive counterargument to building more is to instead focus on suppressing or “cooling” demand. One way that this is proposed is by raising interest rates, but this argument lacks object permanence about the impact of high rates on renters, young adults, and the companies that would otherwise have the capacity to build the homes that we need. The other way that demand restriction arguments come up is through criticism of federal and provincial immigration policies.

This latter approach is growing traction among Canada’s columnist class. To some extent, there are some compelling points made. For instance, much of Canada’s population growth is attributable to an uptick in non-permanent residents such as international students and temporary foreign workers. In an article published last week, Globe & Mail writer Jen Gerson put it bluntly:

“Granting an ever-growing number of student visas to people we know will struggle to find housing is unethical at best and fraudulent at worst.”

This has some resonance in PEI, where international students make up a significant share of the population. In fact, the share in Charlottetown is the highest of any urban area in the country. As I write this piece, PEI’s population is on the cusp of surpassing 180,000 — which means it is growing by more than 25 residents a day. If this topic gains news coverage, it is unlikely that the housing crisis will be excluded from the conversation.

This link between housing and immigration got me thinking: Is it possible to quantify the impact of population growth on PEI’s housing demand? Using a combination of census and population estimates data, I think we can.

The Headship Hypothesis

The first step is to figure out how population and household growth interact. Household formation (or headship) rates are the best predictor of minimum housing demand. For PEI to build enough to keep up with demand, it must build enough homes to equal or exceed the number of households formed over the same period.

For more on household formation rates, see this thread.

Using an average across the past three censuses, you can see that headship rates vary by age. Younger residents are more likely to be living with parents or roommates (headship rates are below 50%), middle-aged residents are more likely to be living with their partner (rates around 50%), and seniors are more likely to be living on their own (rates over 60%). Age plays a huge role in forecasting housing demand because, for better or for worse, the pressure caused by a surge in younger residents is far lower than the pressure that would otherwise be caused by a growth in the senior population.

These numbers are based on calculations of the net change in residents by age cohort, multiplied by the three-census average household formation rates in the previous figure.

Household formations jumped significantly over the past two years, from 1,647 households formed in 2021 to 2,329 in 2022. Much of this spike can be attributed to population growth among PEI’s cohort of young adults (aged 15 to 34). On Canada Day, I wrote about how PEI’s population is being made younger thanks to international immigration. It is interesting to note that international migrants are also significantly younger than their interprovincial counterparts, who are closer to middle age on average.

Note: In-migrant and immigrant average ages are an approximation, limited due to truncated data for entrants older than 90 years of age.

So, if we look at PEI’s population growth data by age and growth component over the past decade, and then apply the long-run average household formation rates for each age cohort, we can then add them together to see how much pressure each category of growth puts on housing demand

Last year’s housing starts were not even high enough to satisfy domestic housing demand.

Household formation rates offer an intermediary explanation for how population growth does and does not affect demand for new housing. PEI’s population growth is almost entirely due to international migration, but these migrants are less likely to form households at the same rates as their older counterparts: namely, interprovincial migrants and incumbent residents. The latter group is a combination of people who moved permanently to PEI in prior years as well as those who were born and raised on the Island. As incumbent residents age into cohorts with higher household formation rates, they put more pressure on PEI’s total housing demand — even if individuals within these cohorts have never moved into a different house.

Since July 2015, international migration has accounted for around 80% of PEI’s population growth, but less than two-thirds of newly formed households. This means that immigration plays a noticeable role in increasing housing demand, but it is far from the only factor.

Limitations and lessons

There are some caveats to this model. For starters, the impact of non-permanent residents on household formation was almost insignificant last year, due to a drop in the number of adult-aged temporary residents. In the last six months, we have seen a big spike in non-PR arrivals to PEI. Age data for these new entrants are not yet available, but I will update this piece when they are out in September.

Second, the incumbent and interprovincial categories mask international immigrants from years prior. People who moved to PEI in past years (or moved after living in a different province) is likely adding additional immigration-based pressure not captured by my approach.

A third caveat is that the lower share of immigration’s impact on housing demand is due in part to Atlantic Canada’s high current levels of inter-provincial migration. If those levels fall or turn negative as they have done in provinces like Ontario, the international share here will surge.

However, my figures on international migrant household formation likely overstate the impact of immigration for a more problematic structural reason. As a result of PEI’s housing shortage, international migrant household formation is even more suppressed than it is for non-immigrants.

While some anti-supply professors treat crowded housing as normal and acceptable in Canada (see recent commentary from Mark Winfield and Steve Pomeroy), this blind spot is no substitute for just letting more get built. I have provided some ideas here about how the province can improve the housing situation for all Islanders: not least young adults, immigrants, renters, and seniors. When the PEI Government rolls out its new housing strategy in the coming months, it will be important to prioritize building homes over blaming outsiders — not least because the math does not add up to support the latter.