Canada’s Immigration Policy Shift: Balancing Growth and Capacity
For years, Justin Trudeau’s Liberal government has championed high immigration targets as a solution to labor shortages and economic growth. But as Canada grapples with housing shortages and strained public services, the balancing act has become increasingly difficult. Facing mounting pressure, Trudeau announced a shift in course: the government will scale back its ambitious immigration targets, lowering this year’s goal to 395,000 new permanent residents, with further reductions to 380,000 in 2026 and 365,000 in 2027.
The decision follows growing public concern over Canada’s population surge, which surpassed 40 million last year after a record increase of over 1 million people, 96 percent of whom arrived through migration. Recent polls indicate shifting public sentiment, with a majority of Canadians believing immigration levels are too high.
Alongside permanent immigration cuts, the government is tightening temporary migration policies. The share of low-wage temporary foreign workers employers can hire will be reduced from 20 to 10 percent, reversing a 2022 policy that contributed to a temporary foreign worker population nearing 3 million. In January, Ottawa also imposed a cap of 360,000 on international student permits, with Immigration Minister Marc Miller citing concerns over institutions profiting from foreign students. These measures reflect a broader shift in Canada’s immigration strategy, emphasizing a more controlled approach amid economic and political pressures.
Housing affordability is at the center of the policy shift, with Canada now home to the most expensive real estate market in the G7. Home prices soared 90 percent between 2010 and 2022, and while the influence of immigration on prices has long been debated, frustration over housing shortages has increasingly fueled skepticism. A Bank of Canada analysis suggests that while immigrants add to housing demand, the real issue is Canada’s failure to build homes fast enough. Internal government reports warned two years ago that housing construction wasn’t keeping pace with population growth, yet migration levels continued to rise. While the recent immigration cuts may ease some pressure, analysts warn that Canada’s housing shortage, already estimated at over 500,000 units, will take years to resolve.
Canada’s decision to curb immigration is set to reshape key sectors, from labor markets to higher education. While lower population growth may ease immediate pressures, it could also worsen labor shortages in industries already struggling to find workers. Health care, trucking, and construction, sectors critical to the economy, are still desperate for employees, yet many newcomers remain underemployed, locked out of jobs that match their skills due to credential barriers. A tighter labor market may force businesses to hire more domestically, but as the economy rebounds, worker shortages could resurface in full force.
Beyond labor, the impact on economic growth remains uncertain. Fewer newcomers mean fewer consumers, but population growth alone hasn’t driven Canada’s economy. Despite a 6% population surge in two years, real GDP grew by just 2%, underscoring the role of interest rates, fiscal policy, and productivity in shaping economic performance. Meanwhile, sectors heavily reliant on immigration, like higher education, are already bracing for impact. With international student permits now capped, enrollments could drop by 45% this fall, leaving universities scrambling to fill budget gaps and university-town economies facing a slowdown.
But beyond the numbers, the real issue is Canada’s chronic failure to coordinate migration policy between federal and provincial governments. For years, immigration targets climbed while jurisdictional divides and fragmented decision-making left Canada reacting to crises instead of planning ahead. Now, with caps in place, policymakers are scrambling to fix issues that better coordination could have prevented years ago.
The international student system is a prime example. Provinces oversee postsecondary institutions, yet weak oversight allowed private colleges to balloon unchecked, driving housing demand and straining public services. Only when the crisis hit did the federal government slash study permits by 35%, forcing provinces and schools to adapt overnight. The lack of clear federal-provincial cooperation in student permitting further complicated the transition, with provinces now left managing the fallout of a system they were never fully in control of.
Temporary foreign worker policies suffer from the same disjointed approach. Ottawa controls work permits, while provinces handle labor approvals, leading to inconsistent policies across the country. Quebec has moved independently to limit temporary workers, exposing the broader disconnect in workforce planning. While federal and provincial ministers now acknowledge the need for better coordination, they remain divided over how temporary migration should be managed, particularly in key industries like agriculture, construction, and health care. Some provinces argue that if temporary foreign worker numbers continue to decline, alternative pathways for skilled labor will be needed to fill critical gaps.
This has intensified calls for greater provincial control over economic migration, particularly through an expansion of Provincial Nominee Program (PNP) allocations, which allows provinces and territories to select immigrants based on their local labor market needs . With fewer temporary workers available, provinces warn that demand for PNP pathways will surge, yet Ottawa has been reluctant to increase provincial shares in immigration planning, further fueling tensions over who should control workforce-driven immigration.
As Canada recalibrates its immigration strategy, the long-term consequences remain unclear. While the government is responding to mounting pressures on housing and public services, its piecemeal approach to migration policy may create new economic and labor market challenges down the line. Provinces are demanding more control, industries are bracing for labor shortages, and universities are facing financial uncertainty. Meanwhile, the federal government remains reluctant to relinquish decision-making power, despite ongoing tensions over coordination.
Without a clear, long-term strategy, Canada risks repeating the same cycle of reactive policymaking, swinging between expansion and restriction without addressing the structural issues at the heart of the immigration debate. The question now is whether policymakers can break this cycle before the next crisis forces yet another course correction.