The effects of slowing population growth in Canada are becoming evident in various sectors of the economy, following the federal government's decision to reduce immigration targets over a year ago. This year marks the second consecutive year of zero population growth in Canada, resulting in decreased aggregate spending. However, economists believe that there are compensating economic activities that may mitigate the overall impact, indicating that it is premature to identify widespread trends in economic data.
One of the most pronounced effects of this slowdown is observable in the real estate market, particularly in rental prices. Shelly Kaushik, senior economist at BMO Capital Markets, noted in an interview that the reduction in population growth has created a noticeable decline in rental prices across the country, especially in regions like Ontario and British Columbia, which historically attract a significant number of international students and temporary foreign workers. According to a report from Rentals.ca and Urbanation, asking rents in Canada decreased by two percent year-over-year in January, making it the 16th consecutive month of annualized rent declines, with an average asking rent of $2,057.
Marc Ercolao, an economist at TD Bank, projects that rental prices will likely stagnate until around 2028, when population growth is expected to return to normal levels. The reduced demand for rental units has also begun to influence the broader housing market, resulting in an oversupply of smaller properties like condos, where there are currently few buyers due to the increased risks associated with renting these units.
Moreover, Ercolao mentioned that there has been a notable decrease in investor activity within the housing market, hampering home building activities this year. He indicated that the housing market is experiencing a stagnation driven by population dynamics, indicating a period of economic adjustment.
The Canada Mortgage and Housing Corporation reported a decline in annual housing starts by 3.5 percent for the fourth consecutive month, reflecting the ongoing adjustment in the housing sector. Interestingly, not all housing types have been equally affected by the slowing population growth. According to Ercolao, the detached housing market remains relatively insulated, as newcomers to Canada are less likely to engage in this segment.
Experts also express concerns about how these economic adjustments may impact Canadians' standard of living. Kaushik observed that during periods of rising population, economic growth had not kept pace, leading to a stagnation in the standard of living, characterized by high rental prices, competitive job markets, and challenges in home purchases. Statistics Canada indicated that the real GDP growth rate rose by 1.7 percent in 2025, a softening from the two percent growth experienced in the previous two years and marking the slowest annual growth pace since 2016, outside of the COVID-19 pandemic. The variations in trade policies during the year added complexity to the economy, presenting challenges in separating population growth effects from broader economic factors.
Despite these challenges, some mitigating factors remain, such as interest rate cuts by the Bank of Canada, which lower borrowing costs and can stimulate spending. Furthermore, the resilience of Canadian consumers has provided an offsetting influence on the economy, as noted by Ercolao.
Nevertheless, there are ongoing risks linked to stagnating population growth. Cynthia Leach, assistant chief economist at Royal Bank of Canada, commented on the unprecedented nature of this singular adjustment, suggesting that such demographic changes could alter perceptions of the economy's strength and affect consumer spending behaviors. Additionally, geopolitical uncertainties, particularly regarding the Canada-United States-Mexico trade agreement (CUSMA), may complicate Canada’s growth projections moving forward.
Kaushik emphasized that the slower economic growth is indicative of the reduced potential output linked to declining population growth, highlighting this as a critical issue for the Bank of Canada to monitor closely amid other economic challenges.
