Canada’s new immigration policies strike the right balance, say economists
Canada’s efforts to curb immigration have been working to ease rental prices and stabilize employment, according to a new report by TD Economics.
In their report, Beata Caranci and Marc Ercolao found that reduced temporary resident and permanent resident admissions have accounted for a 36% slow down in projected rent increases, and nearly a full percentage point reduction in unemployment.
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They also share one surprise finding: Canada’s reduced population growth has not been accompanied by a drop in household spending.
These findings come right as the federal government is expected to release its upcoming Immigration Levels Plan.
Last year’s Immigration Levels Plan 2025-2027 broke away from the trends of the last few years, scaling back on targets for permanent residents (PRs) admissions – from 500,000 annually to 395,000.
It was also the first Immigration Levels Plan to include temporary resident admissions targets.
The Levels Plan presents admission targets for the coming year, along with notional targets for the following two years.
Housing: rental prices are easing, especially in cities with higher proportions of temporary residents
Beata and Ercolao found that slower population growth has been bringing some relief to pockets of Canada’s housing market.
According to data released by Statistics Canada, the population growth in the first quarter of 2025 was 0.0%, and in the second quarter of 2025 remained almost flat at 0.1%.
The flatlining of Canada’s population is attributable primarily to a decrease in the temporary resident population, which has been the intended effect of a series of policy changes made by the federal government over 2024 and 2025.
According to data released by Immigration, Refugees and Citizenship Canada (IRCC), there has been a 59.7% decrease in new student arrivals and a 48.6% decrease in new worker arrivals from January through August 2025, as compared to the same period in 2024.
The impact of this can be seen on the rental market. The TD Economics report states that the current average growth forecast of purpose built rental prices between 2025 and 2027 is 3.5%, but would have been 5.5% had immigration levels not been curbed.
These calculations are based on the interest rate and rental supply assumptions remaining unchanged.
The authors of the report estimate that, had immigration levels remained elevated, this pace would have been nearly twice as high as the historical average, further impacting rental affordability, and costing the average renter about $1,100 more per year for a one-bedroom apartment by 2027.
The effects are particularly evident in rents across major cities, with the largest shifts in British Columbia and Ontario, due to their higher proportions of temporary foreign workers and international students.
The authors stress that immigration isn’t the only force at work; lower interest rates and pro‑rental construction policies are also factors.
Unemployment: smaller labour‑force inflows helped cap the rise
Canada’s job market has cooled through 2024–25. According to data by IRCC, there have been 146,395 fewer new worker arrivals in Canada between January and August 2025, as compared to the same period in 2024.
Beata and Ercolao claim that the market would have cooled even further without the immigration reset.
As of September 2025, Canada’s unemployment rate is 7.1%.
According to the authors’ models, if labour‑force growth had remained near its 2023–24 pace, today’s jobless rate could have breached 8%. This is assuming that employers absorb 30% of new workers.
Even with the more generous assumption that employers would absorb 50% of the new labour supply, the national unemployment rate would have still breached 7.5%.
Employers shed an estimated 40,000 net positions between July and September 2025, and the authors estimate that another 40,000 are at risk this year.
That said, the authors project that the unemployment rate will rise only slightly from current levels before gradually decreasing next year due to slowing labour force growth.
Spending: surprisingly resilient despite fewer newcomers
Beata and Ercolao were surprised by the findings of their analysis of household spending.
Even as population growth slowed sharply, aggregate spending in the first half of 2025 beat most forecasts.
The authors credit several factors, including lower interest rates, households drawing down savings, a revival of housing demand, and stronger domestic tourism.
There also claim there may be another factor at play
Between 2022 and 2024, non-permanent residents accounted for over 70% of population growth (about 1.4 million people), including roughly 400,000 students and 300,000 to 400,000 workers in lower‑wage sectors (groups with less discretionary income).
This implies that the consumer spending from newcomers was muted relative to previous periods.
According to the authors, the real per‑capita spending has turned up after nearly two years of decline and is on track to surpass its mid‑2022 peak next year.
Beata and Ercolao projected that if elevated population flows were to have persisted, per capita spending would not have turned higher until mid-2027.
However, currently, in the first two quarters of the year, population growth in Canada has largely flatlined, which is largely credited to a decline in the number of temporary residents.
The number of temporary residents in Canada actually dropped to 3,024,216 or 7.3% of the total population on July 1, 2025 – down from 7.6% as of October 1, 2025. This is credited to a large number of temporary residents leaving the country or transitioning to PRs.
Policy changes driving decreased immigration
Over the course of 2024 and 2025, the federal government made a number of policy changes with the aim of reducing temporary resident levels:
Restricting PGWP eligibility (for international students outside of bachelor’s, master’s or doctoral degrees) that fall outside a field of study requirement.
Requiring PGWP applicants to demonstrate language proficiency in French or English.
Restricting the availability of spousal open work permits (SOWPs) to spouses of TFWP holders working in TEER 0 or 1 occupations, or in select in-demand TEER 2 or 3 occupations.
Restricting the availability of SOWPs to spouses of students enrolled in doctoral programs, master’s programs of 16 months or longer, and select professional programs.
Establishing a moratorium on the processing of low-wage LMIAs in regions with an unemployment rate of 6% or higher.
Raising the wage threshold for the high-wage stream of the TFWP to 20% above the median regional wage.
The government intended these changes to result in over 300,000 fewer permit issuances over the years 2025-2027, even without the low-wage moratorium.
