The booming Canadian housing market has long been a concern for policymakers and market watchers alike. Yet, new research argues that the market is being powered by Canada’s success at boosting its productive population through immigration, not reckless lending.

In a new report, analysts at National Bank Financial Inc. (NBF) said that, while the U.S. housing market boom that ultimately led to the financial crisis and a global recession was driven by a reduction in lending standards, that is not the case in Canada. In fact, “the Canadian boom has taken place despite a tightening of regulatory conditions,” the report said.

Tougher regulation has included the introduction of stress testing requirements, along with a reduction in maximum amortization periods and higher down payment minimums for insured mortgages. These measures helped slow housing markets initially, but home sales rebounded strongly in 2019, NBF said.

While lower interest rates are one factor behind the rebound, NBF said Canada’s housing boom is also being driven by the country’s demographic trends — particularly strong immigration.

“Canada’s population has been among the fastest-growing of the OECD countries for years now. But last year’s 1.4% gain was exceptional, the highest in almost three decades,” the report said, noting that over 80% of the increase was driven by immigration.

Moreover, immigrants to Canada are unusually young, well educated and well-heeled.

“Immigration to Canada stands out not only for its volume but for its composition,” the report said.

The report noted that about 60% of the annual inflow of permanent residents to Canada are “economic” immigrants, who are selected for “their ability to become economically established.”

“Canada is now undeniably the biggest talent raider in the OECD,” NBF said.

Additionally, immigration to Canada is increasingly concentrated in the 25-to-44-year-old age group, which drives household formation, the report noted. Growth in this age group is correlated with higher housing prices.

Looking ahead, the report said that these trends are expected to continue, with the Canadian government looking to increase immigration.

“Statistics Canada projects that the 25- to 44-year-old cohort will grow 6.9% over the next 10 years,” the report said. “In other words, the vigour of the Canadian housing market is soundly based and set to continue confounding the skeptics.”