Observers confirmed that the new cap imposed by Canada on international student visas will ease the high demand for rental units and slow the rate of rent increases, but it will not necessarily be a major factor in solving the country’s housing affordability crisis.

Steve Pomeroy, an industry professor at the Canadian Housing Evidence Collaborative Research Network at McMaster University, said in a phone interview with CTVNews.ca: "I think what we will see is that the impact will be slow and somewhat muted." Pomeroy is also a senior research fellow at the Centre for Urban Research and Education at Carleton University.

He added in an email: "Setting a cap on students and better managing demand will help slow the rate of rent increases, but it does not necessarily lead to lower rents or make them more affordable."

Pomeroy said that to see rent decreases, demand must be reduced and supply expanded to raise vacancy rates above three percent, with the national overall vacancy rate reaching a new 36-year low of 1.5 percent in 2023, according to a report released Wednesday by the Canada Mortgage and Housing Corporation.

He explained that the cap will primarily affect the rental market because international students and temporary foreign workers tend to rent homes rather than own them.

Pomeroy added: "The (federal government) is very late to the game, but at least it is now acting in the right way," referring to the recent government move to limit the increase in foreign students, saying "I think it is a positive step for the rental market... because it basically reduces future demand, which in turn will ease pressure on rents, so we won’t see very large rent increases."

Immigration Minister Marc Miller announced on January 22 a two-year temporary cap on foreign student registrations that would cut new permits by 35 percent this year. This step means Canada will have a maximum of 364,000 new permits this year, with permits valid for three years.

Canadian Press reported that more than 900,000 foreign students obtained visas to study in Canada in 2023, and more than half received new permits. Miller’s announcement came as the growing international student program in Canada puts pressure on local housing markets, according to the government.

The cap on new applications for 2025 will be reviewed by the end of the year, and Miller said this step aims to address the issue of institutions and "bad actors" charging high tuition fees while increasing the number of international students they accept.

Bank of Canada Governor Tiff Macklem told Canadian Press that the new cap would help ease pressure on rent costs in the country. Rentals.ca and Urbanation reported that the average listed rent jumped to a record high of $2,178 per month in December.

Pomeroy and some experts point to the large number of foreign students as the main driver of the housing affordability crisis.

He said: "This is not discriminatory, it’s just the absolute quantity, and the number of student visas issued in an unmanaged system." "The level of student visas has far exceeded what we can realistically accommodate in terms of housing availability."

Robert Kavcic, chief economist at BMO Capital Markets, agrees that the cap will help ease rent increases — but not significantly or anytime soon.

He said in an email to CTVNews.ca: "It may take some time for the market to adjust given there is already a significant backlog of excess demand on the ground today. So a sudden significant drop in rents is unlikely." "Setting a cap would ease rental demand and take some steam out of rent increases."

Cover "to make things better slowly"

However, Kavcic expects the foreign student visa cap to provide some relief.

He said, "It has allowed demand to grow much faster than our ability to supply, and demand-side measures like this cap can be implemented much faster with a much more immediate impact than increasing supply, which can take years."

However, Pomeroy said he believes the visa cap will not have an immediate effect unless many visas expire and foreign students leave Canada soon, creating vacant rental apartments. Immigration, Refugees and Citizenship Canada was not immediately able to provide CTVNews.ca with such data.

Pomeroy said: "So I think the current new approach is that it will prevent things from getting worse, but it will only improve things slowly."

Prentice Dantzler, assistant professor of sociology and faculty advisor at the School of Cities at the University of Toronto, expects rental demand to decline but believes the cap will not adequately address the housing crisis.

He said in an email to CTVNews: "While this may ease demand, the supply side still suffers from a lack of affordable housing units and a high rate of market speculation (i.e., homes for profit rather than housing as a home)."

For example, he said that newer units being built are much smaller than older units occupied by many international students.

He explained, "Many international students live in dormitories or basement units, and some are even crowded into apartments to reduce housing costs." "Because the needs of international students differ from those of other populations (such as seniors or growing families), the housing system does not provide sufficient housing for all types of different family arrangements."