As Canada's population growth slows, an economic shift emerges

Crowds attend the Canadian Tulip Festival at Commissioners Park in Ottawa, on Saturday, May 13, 2023. THE CANADIAN PRESS/Justin Tang

The effects of slowing population growth have started to show up in some sectors of the economy, more than a year after the federal government reduced its immigration targets.

This year is expected to be the second in a row with zero population growth in Canada after the federal government reduced its immigration targets 16 months ago. While fewer people in the economy generally means less aggregate spending, economists say there are offsetting economic activities that can mute the overall impact of slowed population growth, and it’s still a bit early to point to broad trends in the data.

But within specific sectors, they acknowledge signs of a shift in the economy are emerging.

One of the clearest effects of slowing population growth has been in real estate on the rental market, said Shelly Kaushik, senior economist at BMO Capital Markets, in an interview.

Newcomers, such as temporary foreign workers and international students, show up in very specific areas of the economy, she explained, and this is one of them.

“One of the fastest effects we’ve seen is deceleration in rental prices across the country, but especially in places like Ontario and (British Columbia), where there is and was certainly a larger share of international students coming into the country,” she said.

Asking rents in Canada fell two per cent year-over-year in January to an average of $2,057, marking the 16th consecutive month of annualized rent decreases, according to a report from Rentals.ca and Urbanation.

Rental prices are likely to stagnate until around 2028, when population growth is expected to normalize, said TD Bank economist Marc Ercolao.

A drop in demand for rental units has also begun trickling into the overall housing market.

Smaller properties, such as condos, are now seeing a glut of inventory of new builds, but there are hardly any buyers, because renting out the units is a riskier proposition than it was a few years ago.

Ercolao said the impacts are being felt beyond the purpose-built rentals and into the secondary rental market, where condo owners rent out their units.

There has also been a slowdown in investor activity in the housing market, which would be a drag on home building this year, he said.

“You’re getting this period of a real stagnation in the housing market through this year and into next year, in part driven by population,” Ercolao said.

Canada Mortgage and Housing Corp. last month reported the agency’s six-month moving average for annual starts declined 3.5 per cent for the fourth consecutive month.

But the effects of slowing population growth haven’t been the same across all housing types.

“Detached (housing) market isn’t seeing as much of an effect since a very small share of newcomers to Canada aren’t really engaged in that part of the market,” Ercolao said.

“That area, at least in housing, is shielded from these impacts.”

All that eventually trickles down to how Canadians live, experts say.

Canadians may have started to see signs of change in their standard of living, Kaushik said.

“When population was rising, economic growth was not keeping up at that same pace,” she said. “We really saw a standard of living essentially stagnating for a little bit there.”

This was showing up in high rental prices, a competitive jobs market and home purchases.

“That’s what they were feeling, even if they necessarily couldn’t point to that,” Kaushik said.

Statistics Canada reported real GDP rose 1.7 per cent in 2025 overall, cooling from two per cent growth in each of the previous two years and marking the slowest pace of annual growth since 2016, outside the COVID-19 pandemic.

It was a year marked by wild swings in trade policy, as well as better-than-expected resilience. And economists note that it’s difficult to isolate population growth from broader economic factors at any time, let alone this one.

“There are impacts showing up in certain segments of the economy. But you’re getting a lot of either offsets or disruptions from other areas,” Ercolao said.

One such reprieve comes from the Bank of Canada’s interest rate cuts, helping lower the cost of borrowing and push spending higher.

Meanwhile, “Canadian consumers (have) been fairly resilient,” Ercolao said.

“That’s been probably one of the bigger offsetting factors.”

Still, risks of stagnating population growth remain.

Cynthia Leach, assistant chief economist at Royal Bank of Canada, said while it’s a one-time adjustment, Canada hasn’t really seen a population decline like this before.

“That could have an effect on how people perceive the strength of the economy and their willingness to spend,” she said.

Growing geopolitical uncertainties, such as the upcoming Canada-United States-Mexico trade agreement, or CUSMA, could undermine the country’s growth projections.

Kaushik said the economic growth is slower than it should be. A part of that potential output is determined by the population growth, and since it’s slowing, the potential growth is slowing with it.

“That’s something that the Bank of Canada is going to be watching closely,” she said. “But again, it’s one of the many issues that they’re dealing with.”

Ritika Dubey, The Canadian Press