• A sharp loss in ownership affordability and record population growth kept upward pressure on rental demand in 2023, pushing rent growth for 2-bed purpose-built units to a new high of 8%.
  • Vacancy rates plummeted to their lowest point on record (1.5%) as supply-demand conditions moved further from a balance.
  • Disappointingly, growth in Canada’s rental stock moderated to its slowest pace in four years (+1.7%) in 2023.
  • Housing affordability challenges have become starker in the rental market with 8% of the purpose-built rental stock now in arrears.
  • The Bottom Line: Policy action supporting a supply-side boost will be crucial to bringing the market closer to a balance given strong demand side pressures.

Rental vacancy rates fall to lowest on record

Acute supply-demand imbalances have pushed the national rental vacancy rate to 1.5% – the lowest point since at least 1988, according to the latest Canada Mortgage and Housing Corp.’s (CMHC) rental market report.

Edmonton and Calgary reported the sharpest drops among Canada’s six major census metropolitan areas (CMAs) last year – due, in part, to the substantial inflow of interprovincial migrants to the province which kept demand for rental housing robust. Calgary now rivals Toronto as the second tightest major rental market in the country. Though the rental vacancy rate in Edmonton is still the highest of the six major markets, a drop to 2.4% indicates that even this city is suffering from a rental supply shortage.

Vancouver’s rental vacancy rate continues to sit below sub-1%, making it the tightest (and most expensive) market in Canada. But tight conditions have spread beyond urban boundaries. Belleville is now the only CMA in Canada with a vacancy rate at or above the optimal 3% rate, which indicates a balance in the market.

Rent growth more than doubles from long-term average

Average rent for a 2-bedroom purpose built unit increased 8% in the 12 months to October 2023, exceeding both inflation (+3.1%) and wage growth (+4.8%) over the same period. This is the highest rate of increase since at least 1990 and more than double the average rate observed in the five years leading up to the pandemic (+3.7%).

In addition, average rent growth for turnover units (those with new tenants) reached a whopping 24% nationally and even higher in Canada’s tighter markets. In Vancouver, it grew 34%, Calgary was up 20%, while it was north of 40% in some Ontario markets like Toronto.

With rents climbing quickly, a larger share of purpose-built rental units has fallen into arrears (8%). The modest 8% recorded nationally is magnified in Ontario where 16% of rental households are behind on rent payments, lead by London and Toronto where at least 1 in 5 purpose-built rental households are behind on rent.

Challenging environment for construction industry curbs supply

High construction costs and interest rates, regulatory challenges, and labour shortages battered the housing development industry last year – impeding much-needed rental housing projects. On the heels of a timid 2.4% increase in supply in 2022, the 1.7% growth observed in 2023 represents stalled progress for the purpose-built rental stock. And in the case of Toronto, an outright contraction of 0.5% couldn’t come at a worse time.

A decade-long shift towards renting in Canada coupled with a post-pandemic population boom has brought the rental market imbalance to new extremes. There were less than 40,000 new purpose-built rental units in Canada last year, according to the CMHC report, despite more than one million newcomers in 2023.

Though Ottawa’s GST exemption on rental housing (matched by PST exemptions in some provinces) was a step in the right direction last year, it will take more policy action to entice developers to kickstart new rental construction projects in this environment. Lower interest rates and the recently announced cap on international students should alleviate some of the demand pressure too – particularly in areas near post-secondary institutions.

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