In 2023, a sharp decline in the affordability of property ownership, coupled with a notable surge in population, continued to exert upward pressure on rental demand, leading to a record-high 8% growth in rents for 2-bedroom purpose-built units.
Vacancy rates plummeted to an all-time low of 1.5%, indicating a significant deviation from supply-demand equilibrium. Regrettably, the expansion of Canada’s rental stock slowed to its most sluggish pace in four years, increasing by only 1.7% in 2023.
The rental market’s affordability challenges have intensified, with 8% of purpose-built rental units now in arrears. To address the imbalance caused by robust demand, policy interventions supporting an increase in the housing supply are crucial.
Rental vacancy rates across the nation reached historic lows, with acute supply-demand imbalances pushing the rate to 1.5%—the lowest since records began in 1988, according to the latest Canada Mortgage and Housing Corp. (CMHC) report.
Cities like Edmonton and Calgary experienced significant declines in vacancy rates, attributed in part to substantial interprovincial migration inflows, sustaining robust rental housing demand. Calgary now rivals Toronto as one of the tightest major rental markets in the country. Despite Edmonton still having the highest vacancy rate among the six major markets, a drop to 2.4% indicates a shortage in rental supply even in this city.
Vancouver maintains a rental vacancy rate below 1%, solidifying its position as Canada’s tightest and most expensive rental market. Tight conditions have extended beyond urban centers, with Belleville being the only census metropolitan area (CMA) in Canada with a vacancy rate at or above the optimal 3% rate, signifying market balance.
Rent growth soared beyond the long-term average, with the average rent for a 2-bedroom purpose-built unit increasing by 8% in the year leading to October 2023—more than double the average observed in the five years preceding the pandemic.
High rent growth was also observed for turnover units, reaching a staggering 24% nationally and even higher in tighter markets like Vancouver and Toronto.
The construction industry faced challenges, including high costs, interest rates, regulatory hurdles, and labor shortages, hindering much-needed rental housing projects. This resulted in a modest 1.7% growth in rental stock in 2023, following a timid 2.4% increase in 2022. In Toronto, there was an outright contraction of 0.5% in rental stock.
A decade-long trend toward renting in Canada, combined with a post-pandemic population surge, has exacerbated the rental market imbalance. Despite over one million newcomers in 2023, there were fewer than 40,000 new purpose-built rental units in Canada.
While Ottawa’s GST exemption on rental housing was a positive step, more policy action is needed to incentivize developers to initiate new rental construction projects. Lower interest rates and the recently announced cap on international students are expected to alleviate some demand pressure, particularly in areas near post-secondary institutions.