Housing unaffordability will further lower the birth rate in Canada, which will be used by politicians to increase immigration, which will exacerbate housing unaffordability. We may be in for a decades-long negative feedback loop.
ABOUNDING MYOPIA
One of my points of dissatisfaction with politicians – especially the ones in power – is that they act on problems only when the problems threaten their political careers. This means that (a) policy is quite often founded on faulty but popular premises, and (b) by the time it becomes popular to acknowledge the problem, it has become significantly more difficult to resolve. This sad situation is further exacerbated because critical analyses of these faulty premises are few and far between; for the most part, our commentariat espouses the same ideas as the politicians do, and calls any dissenters as (insert issue-dependent label here). It falls to independent voices (such as yours truly) to challenge the accepted ‘truths’. In that vein, in this article I will be examining two of the popular premises in Canada, viz., (1) that our birth-rate is below replacement level, such that without immigration, the population of Canada would decline, and (2) that we need immigration to fill labour shortages, which result primarily from the said low birth-rate.
I have often said that the Canadian economy is basically a real estate Ponzi scheme, and keeping this game going requires the existence of the immigration Ponzi scheme. My exploration of the above two premises (regarding birth-rate and labour shortages) will help me arrive at an answer as to whether my ‘Ponzi scheme’ argument holds water or not.
SORTING NUMBERS
Statistics Canada reported recently that 98% of the growth in Canadian population from July 1, 2022 to July 1, 2023 came from immigration. I have seen countless posts online interpreting this to mean that without immigration, Canada’s population would decline. However, that is simply not true: If 98% of the increase in population was because of immigration, then it logically follows that the remaining 2% of the population growth was due to local births. Even Statistics Canada acknowledges this:
We need to keep in mind that this 2% pertains to the increase in population, and not the total poulation. Taking a ballpark figure of 1 million as this increase in population, we can say that if we did not have immigration, our population would have increased by roughly 20,000 in one year. Further, taking the total population at the start of this one-year period at roughly 38 million, we can say that, if we did not have immigration, the rate of increase in population would have been 0.053%. This is definitely on the lower side – but still a far cry from the scare mongering about ‘population decline’ that is routinely used to justify immigration. If I may be allowed to use harsh terms here, any politician talking about Canada experiencing ‘population decline’ if we did not have immigration is selling you a lie.
Of course, the children born in the most recent year are not yet workers and won’t be for many years (as an aside, it is worth noting here that while it is true that the children born in the last year aren’t yet in the workforce, it is equally true that most (almost all?) of the people who died in the last year were also no longer in the workforce). In order to gain a proper understanding of this point, we would need to look at corresponding numbers going back 20 years (or longer). However, I am willing to go out on a limb here and state that there hasn’t been a single year when the entire population increase in Canada was due to immigration. In other words, over the long term, Canadians have been having more than enough children to replace the retiring workers – unless the additional requirement for workers was greater than the domestic increase in population. We shall address this latter point in a leter section in this article.
HOW DO THEY COUNT PEOPLE?
The second doubt that emerges from the StatsCan report is regarding the fertility rate, said to be 1.33 children per woman (down from 1.44 children per woman in 2021). We know that at replacement level, fertility rate needs to be 2.1 children per woman. At this rate of 2.1, the population remains stable. For the population to increase, the rate needs to be higher than 2.1.
We just saw that domestic births are more than sufficient to not only sustain the existing level of Canada’s population, but would in fact result in a (tiny) population increase. But this is simply not possible at a fertility rate of 1.33 (or even 1.44). Something is amiss. What is it?
The only possibility that I see here is in the definition of ‘woman’ (and no, this has absolutely nothing to do with the gender wars being waged in Canada at present – although there is a possibility that if born-males start identifying as women in sufficient numbers, the StatsCan-calculated ‘fertility rate’ would drop further). As I see it, the only way our population can increase by 20,000 due to domestic births WHILE the fertility rate per woman is below 2.1 is if females who are too young to be in the childbearing stage of their lives are counted as ‘women’ in the calculation of the birth rate.
I also wonder if sponsored parents (where the mother or grandmother is usually – can I say ‘by default’? – past the childbearing age) are also included in this calculation. If so, immigration would have the effect of artificially supressing the ferility rate. And speaking of immigrants, given that many immigrants arrive here with children and thus have no desire to have any more children, the population of ‘women’ would increase with every incoming woman immigrant, without a corresponding increase in the number of children being born – and this would be doubly true if / when one or more of the children that the immigrants bring with them is / are girl(s) and thus counted as ‘women’.
Finally (and I hope I do not sound conspitratorial here – if I haven’t managed to do that already), does the StatsCan calculation of fertility rate include the women who are, in technical lingo, Non-Permanent Residents (NPR), such as international students and Temporary Foreign Workers? Barring exceptions, these women aren’t going to bear children in Canada while they are on NPR status.
In sum, the fertility rate reported by StatsCan (1.33) is roughly 37% lower than the one suggested by the fact that via domestic briths alone, our population increased by 20,000 in one year. The number of births is, I believe, unchallengeable. Therefore, the discrepancy can only arise if the number of women, as counted by StatsCan, includes women who shouldn’t be included. I think this is what is going on here.
THE WORTH OF LABOUR
One persistent ire of mine in Canada is the contention that we need immigration to fill labour shortages, or to pay taxes that would sustain the spending on social policies. On the face of it, there may be nothing wrong with the statement, but I have always felt that people taking this stance view immigrants merely as units of labour. The (only) slightly less bad version of this claim is that we need immigration to sustain & grow the economy. But I believe that in that case, immigrants are being viewed purely as economic units, rather than as people.
The most glaring omission in the debate around immigration is how much labour is required to fulfill the needs of new immigrants that we brought in to fill labour shortages. This is a crucial point. While we may desire to bring immigrants to Canada to fill labour shortages, their arrival here creates the need for more labour. Moreover, the needs of immigrants are not limited to economic ones, viz., the stuff that we all need in order to live (housing, energy, food, transport etc.), but rather also include needs that are recreational, cutural, religious and (hopefully) spiritual. So, the million dollar question is this: How many additional ‘units of labour’ are needed to fullfill all these needs of one ‘unit of labour’ of an immigrant? Ideally, I believe that the ratio should be better than 1:1 – this would mean that the arrival of, say, 100,000 immigrants would create the need for less than 100,000 additional workers. Let’s say that this ratio is 1:0.8. So, in the next iteration of immigration, we would need 80,000 new workers (minus the additional workers stemming from population growth via domestic births from some years ago) to fulfill the needs of the first 100,000. If this continues for a decade or so, then the need for immigration would cease to exist.
On the other hand, if the ratio is exactly 1:1, then we would need the same number of new immigrants every year, to fulfill the needs of the immigrants of the preceding year. However, as we know, the immigration numbers going back a couple of decades (if not longer) have shown a rising trend. This suggests to me that our actual ration is worse than 1:1. If this is true (as I believe it is), then the conclusion is hugely consequential: Immigration creates need for more immigration at ever-higher levels. In colloquial langauge, our immigration policy is chasing its own tail. Due to low productivity, ‘labour shrotages’ are structurally incapable of being ‘filled’, because the needs of each incoming worker creates a ‘labour shortage’ of more than one worker. This is akin to trying to put out a fire by pouring petrol on it – the more we try to ‘fill labour shortages’ via immigration, the greater these ‘labour shortages’ become. For those familiar with Dr. Laurence Peters’s work, this is a ‘Peter Pyramid’, viz., an inverted pyramid (a pyramid turned upside down); it has no terminal point (the summit of the pyramid), rather, it keeps expanding to infinity.
OUTPUT MATTERS
Now let us examine the contention that the productivity of labour is low in Canada. This has been reported on rather extensively. For example, according to OECD data, in 2022, GDP per hour worked (in US$, 2015 Purchasing Power Parity) in Canada was 53.3, whereas it was 74.0 in the US, 59.6 in the UK, 60.7 in the Euro Area (19 countries), 76.5 in Switzerland, 74.0 in Sweden, 68.0 in the Netherlands and 54.6 in Italy. In fact, Canada was only slightly ahead of Turkey, which was at 52.8. For everyone talking incessantly about how much better Canada is in relation to the US, it should be galling that our labour productivity is almost 28% lower than in the US.
I believe that this is not a recent phenomenon (however much Conservatices may want to pin it on PM Trudeau exclusively). As I showed in my article ‘Immigration Does NOT Increase Prosperity’, the annual Compounded Average Growth Rate (CAGR) in per capita GDP, after adjusting for inflation, fell from 4.22% during the 10-year period of 1961-1970 to a paltry 0.67% during the 10-year perdiod of 2012-2021. Whan I posted my article, a lot of people concluded that this was proof of PM Trudeau’s disastrous record on the economic front. But in reality, this downward trajectory has existed for several decades.
In fact, per capita growth fell off the cliff just as our immigration nujmbers were ramped up: during the 25-year period of 1971-1995, the real CAGR of per capita GDP was an already worrying 1.70%. This represented a 60% drop in the growth of individual economic well-being. In the succeeding 25-year period, this growth rate fell further to 1.44%, reptresenting a 66% drop from the 1960’s. Out of this, in the final decade (2012-2021), the decline is a jaw dropping 84%. Put in simple terms, the average worker is barely hanging on to their financial condition year after year. Out of this, if you separate out the well-paid workers (in both the public and private sectors), it is easy to see how most workers are falling behind on an ongoing basis. This has serious implications on our housing situation.
Before we look at that, however, allow me to inject the familiar caveat: correlation is not causation. And even if causation can be established, I am not sure of the direction in which it applies in this instance. So I am not sure whether high immigration caused the decline in per capita growth, or the immigration levels were raised with the intention to camouflage declining per capita growth and instead create the illusion of growth based on overall GDP increase resulting from the combined factors of higher population and inflation.
THREE IS A FAMILY
Unlike the above, the correlation and the cuasation between high cost of living and formation of families is well-established. A big chunk of cost of living is cost of housing, and this chunk has been getting bigger over the past few decades. In characteristic human fashion, we sought to deal with this growing problem by applying band-aid solutions. At the same time, other policies / actions had the effect of deepening the wound. For example, we essentially stopped building Purpose-Built Residential (PBR) properties some 40 years ago. Remember that this was around the time when the immigration numbers were getting really ramped up. As newcomers to the country, immigrants have to necessarily rent, at least for the first few years. The sensible thing to do would have been to start building PBR to absorb several years’ worth of immigrants. The same goes for building affordable housing – as the population rose, more affordable units should have been built. But we did the opposite, in both cases. In light of this juxtaposition, it is worth examining how the resulting housing scarcity has thwarted the formation of families. To put a fine point on it, government policies and actions created conditions that depressed family-formation (and thereby created an obstacle to having children), and the resulting decline in birth rates formed the basis for the government’s argument in favour of high immigration.
The crucial question at this point is whether the sharp increase in housing costs – and the unattainability of home ownership – has tipped us over to the other side of the hill, where we go tumbling down to the bottom where forming a family is a privilege available to the very few. Even with the recent pull-back in home prices, they remain seriously out of reach for most people. And since much of the rental capacity has been outsourced to individual ‘investors’, their cost of carrying the mortgage having increased with the sharp raise in interest rates, renters are in the same boat as the people looking to buy a home. For all the triumphant messaging by the governments (federal as well as provincial), their policies aimed at increasing the stock of PBR and other forms of housing will take several years to result in actual supply. On the other hand, the push for bringing ever more people to Canada continues; apart from the target of 500,000 immigrants by 2025, the forecast for international student numbers is that they would be around 1.4 million by 2027, over 50% higher than the already-too-high current number of 900,000.
I see a lot of people asking the question “Where will they live?” It is a valid question, but in the context of the present discussion, I think it is better to ask instead, “How will they live?” because how they live will decide whether they are able to start families or not. If people are crammed in hosuing that is sub-optimal for startinf families, then the formation of families will take even more of a hit. We may be looking at an actual fertility rate (as opposed to the StatsCan one) being significantly lower than 2.1. This will only strengthen the argument for more immigration to ‘fill labour shortages’ and ‘prevent population decline’. In fact, that is happening already.
HAMMER, MEET NAIL
As reported by the Toronto Star, Housing Minister Sean Fraser outlined a plan ‘in bold strokes’ a government plan “help tackle Canada’s housing crisis that will include more foreign workers and support for the mass production of homes in factories” (emphasis added). To start with, mass-producing homes in factories is terra nova, so I am not sure how quickly we can get cracking on it (unless we outsource that to China – with the result of causing large scale unemployment in the construction industry). But more importantly, this is one more problem that the mavens of policy have concluded can be solved by bringing more people to Canada. This ‘plan’ – if we can charitably call it that – has more to do with preserving vote-banks than with solving the housing crisis.
ALL HANDS ON DECK
Now let us turn our attention to a point that I alluded to in the initial part of this article: a situation where the demand for additional workers exceeds the local capacity to supply. Two situations where this can happen are: (a) discovery of a new deposit of a natural resource (such as a mineral), and (b) invention of new technology that finds enthusiastic acceptance in the market (such as Facebook, Twitter etc. that created the need for thousands of IT workers). In a nutshell, the economy needs to be going gangbusters in order for the need to import workers arises.
Unfortunately, as I mentioned earlier, Canadian economy has not reached that level of growth for the past several decades. Nor is this likely to change in the near future; according to OECD’s country note for Canada, our investment is R&D in information industries is a mere 0.4% of GDP, compared to 1.4% of GDP for the top 5 performers in OECD. That is a gap of a whopping 71.43%. It is, therefore, no surprise that the OECD predicts that in the decade 2020-2030, Canada will be the worst performing economy among advanced nations (at 0.7% per annum). This lends credence to my hypothesis that we have opted for the model of increased workers to raise output, rather than increased productivity. It is therefore in the nature of things that increased output does not increased per capita GDP. Given these numbers, it is unfathomable as to whey the push for more immigrants & foreign workers (including via the international student route) continues unabated.
FULL CIRCLE
My conclusion from the above discussion is that for the past four or five decades, low per capita output and high immigration have reinforced each other. This is how I see the situation:
- Real per capita output in Canada declined sharply, and then kept declining,
- This was concealed – intentionally or otherwise – by increasing population numbers via immigration, resulting in illusory ‘growth’,
- The population numbers grew too large for our economy to provide housing for,
- The resulting housing scarcity was concealed by resorting to band-aid ‘solutions’,
- The birth rate / fertility rate declined due to the housing scarcity,
- In the process, a paradigm emerged where businesses were able to underpay workers; this added to the already existing pressure (from immigrant voting blocks) on policymakers to increase immigration to depress wages further (to put a fine point on it, both the workers and the employers want more immigration),
- The sharp increase in recent years in the influx of people (immigrants, temporary foreign workers & international students) has brought the housing crisis to a head,
- Too many structural obstacles were allowed to grow in the path to increase the stock of housing quickly and/or to reduce the influx of newcomers to Canada.
As a result, the mismatch between population growth and housing availability / affordability has become a runaway train that we, collectively, lack the ability to stop. This can only have a negative impact on the birth rate, which will be used as a lever to jack up immigration. But in view of our tepid capacity to build more housing, the gap between the demand for and supply of housing will get substantially worse, which will, in turn, worsen the birth rate even further. It will take some bold policy reform to break out of this negative feedback loop, where the two crises make each other worse endlessly.
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