The asking rent for units1 across Canada fell for the first time in three years in October with big declines seen in the largest and most expensive cities of Toronto and Vancouver—providing some relief to lease hunters where rent unaffordability has been crushing.

We see lower immigration levels easing rent demand in the year ahead. Improved ownership affordability from declining interest rates also sets the stage for further rent market rebalancing—or contained price appreciations at the very least.

Asking rent for a two-bedroom unit was down $320 (-9.4%) in Toronto in October from the same month a year ago. Surrounding areas like Brampton (-$256) and Mississauga (-$111) also posted sizable declines after months of softening prices.

Canada’s most expensive rent market, Vancouver, saw an even larger $478 dip (-12% y/y) in asking rent and an outsized drop posted in neighbouring Burnaby (-$349). Still, at an average of $3,430 and $3,091 respectively, advertised rent in Toronto and Vancouver continues to represent roughly 40% of median household income in those cities.

Asking rent in Canada’s smaller and more affordable markets like Saskatoon (+$267), Winnipeg (+$139) and Regina (+$94) continued to climb—though the pace of growth has come down from highs recorded earlier this year.

Rental construction renaissance increases supply

A few factors are adding downward pressure to Canada’s rent market this year. For one, rental completions have ramped up significantly in recent quarters as construction projects that started some time ago reach the finish line. The number of purpose-built units started nearly quadrupled in the past decade, accelerating significantly since 2018 after the introduction of various government incentives. That’s added to the supply of available units, providing more choice to lease hunters.

The rental construction boom has been especially prominent in markets like Toronto and Vancouver where growth in unit completions well outpaced population growth in recent quarters, pushing up the number of units per 100,000 people. This comes after decades of little rental construction that contributed to extremely tight market dynamics.

Lower immigration, softening labour market will have impact

Recent immigration policy announcements are also easing rental market pressures. Lower immigration targets have already curbed population growth among international students and workers, who are important sources of rent demand. The full impact of the federal government’s new immigration policy is yet to be seen, but Canada’s population growth rate is expected to shrink substantially in the years ahead—slowing the number of households formed by an estimated 400,000 (-46%) over the next three years.

Labour market dynamics play a role in softening rent demand as well. Canada’s unemployment rate has risen almost 1 percentage point from last year with some of the largest cities such as Toronto and surrounding areas seeing the sharpest increases.

The labour market weakening is also more pronounced younger workers—a group that’s more likely to rent. That’s straining their ability to keep up with housing costs, including rent, and driving more households to bundle as tenants move back home or room with others to save on expenses.

Rent demand pressures are softening among some groups, but lower rent and easing competition could also be the catalyst attracting others to the market. This, alongside the chronic undersupply of rental housing, should contain any rent declines as the market searches for a new equilibrium.

    1. Asking rent for vacant available units comes from rentals.ca, and is collected from a network of listing services, covering units for lease on the primary and secondary rental market. This data tends to be more volatile than data published by Canada Mortgage and Housing Corp., because new available units are more likely to reflect near-term trends. Luxury units on the secondary rental market, duplicate listings, and/or overpriced listings (which will likely take longer to lease) are also included in the sample.

Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis Group, providing analysis for the provincial macroeconomic outlook and budget commentaries.

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