Capping foreign students won’t solve Canada’s immigration problem

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John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).

With the new cap on student visas announced this week, the federal government seems to be restoring order to immigration. Amid the general malaise afflicting the country just now – a housing crisis, stagnant economy, stubborn inflation and punishing mortgage costs – appearing to lose control of the borders wasn’t a good look.

But it’s not really what’s happening. Immigration is soaring across the Western world, but not because governments have lost their grip. It’s because of the demand in Western countries for immigrants, driven by slowing economies.

Start with Canada. For years, our annual net migration hovered at a little under 1 per cent of the country’s population, with a long-time average of around 200,000 to 300,000 net new arrivals each year. Last year it shot up to more than a million. To some degree this was bounceback from the collapse that happened during the pandemic, when borders were closed, and it put the average of the past few years back in line with the trend of the past decade.

However – and this is the key point – that trend had been sharply upward. On the eve of the pandemic, Canada was approaching half a million net new arrivals each year, a doubling from its long-term average. This wasn’t unusual. Almost all Western countries, including those with less welcoming immigration systems, have had similar increases. In the same time period, immigration to Germany tripled. Ditto for Britain.

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These sharp rises have caused tensions, and it’s been tempting to blame the rising numbers on opportunistic immigrants and feckless governments. In Germany, support for the anti-immigrant, far-right Alternative for Germany party now surpasses that of the government, and has triggered huge anti-fascist rallies across the country. In the Netherlands, an anti-immigrant party is on the verge of forming the government. In Italy, it already has. In Britain, the governing Conservatives are weaponizing small boat crossings of the English Channel to demonize foreigners.

Mercifully here in Canada our politicians and media have largely avoided this sort of toxicity. Nevertheless, immigration is being blamed, at least in part, for the housing crisis, and it’s pretty clear why: If demand rapidly outstrips supply, prices will rise. But while the logic is impeccable, it’s probably putting the cart before the horse. Surging immigration isn’t a cause of the housing crisis, but a result of it.

As I never tire of reminding people, one person’s housing crisis is another person’s best investment. A significant chunk of the Canadian population, from middle-class investors to large institutions such as pension funds, has come to depend for its lifestyle on the inflation of property values.

The housing bubble that has resulted isn’t accidental. Over the past couple of decades, a cocktail of policies from the central bank and governments (at all levels) have worked together to inflate house prices and keep supply chronically below demand. While this has juiced the economy and boosted average household wealth, it has also led to the misallocation of capital – Canada’s banks lend far more to house buyers than business owners – inhibited new business formation, raised inflation, slowed economic growth and worsened productivity. The housing bubble has probably also aggravated Canada’s declining birth rate, given that rising house prices are known to delay household formation.

Put it all together and you have an aging society dependent on a diminishing labour force whose productivity is declining. In such a situation, the only way a government can keep the economy growing sufficiently to support its spending commitments is to bring in more workers, lots of them. Although Canada’s housing crisis and labour-productivity problems are especially acute, across the West we’re seeing the same tendencies.

Canada’s student-visa scheme had lent itself to abuse, so some change was probably in order. At the margins, the measure may arrest some of the worst effects of the housing crisis – one hears anecdotes of slumlords packing foreign students into cramped accommodation, so we needn’t weep at their loss. But we shouldn’t kid ourselves that the measure will do much to alleviate our problem. In fact, it may create a new one.

Across the West, the tide is turning against immigration. But it’s not just the native-born population that is calling for immigrants to go home. An increasing number of immigrants are packing up and leaving, finding life in their new countries too expensive and the opportunities more limited than they’d been told. And if the number of immigrants coming to the West falls, it will take economies down with it. Some forecasters reckon that cutting immigration will tip Canada into full-blown recession.

Although the Canadian economy isn’t in great health, surging immigration isn’t the disease. At most it’s a symptom. And unless the underlying problem is solved, it won’t go away.