While the news may come as no surprise to anyone following recent Canadian housing trends, CMHC’s Rental Market Report released earlier this year confirms that Vancouver and Toronto still have some of the country’s highest average rents, and this phenomenon is growing across the country.
What’s driving Canada’s ongoing rental housing affordability problem? Rising house prices don’t just affect prospective homebuyers, but renters as well, with rents soaring as supply dwindles as a result of surging demand for housing. It’s all part of Canada’s larger interconnected housing challenge—one that CMHC is partnering with other levels of government, along with private and non-profit sectors, to help solve.
Here’s a closer look at a few of the factors behind recent rental market trends, what they mean for Canadians, and the work being done to help address these issues.
Surging rental demand
One potentially surprising highlight from CMHC’s 2023 Rental Market Report is that Canada’s rental supply actually increased in 2022. In fact, the country’s rental market recorded its strongest rate of growth since 2013, with about 55,000 more purpose-built rental apartments hitting the market between October 2021 and October 2022.
It still wasn’t enough to match surging demand for rental properties across the country, however, which helped drive the national vacancy rate down from 3.1% to 1.9% in 2022. This downward trend was reflected in declining vacancy rates across Canada’s largest rental markets (Vancouver, Montréal and Toronto), with Toronto reporting an especially steep decline in vacancies.
What is driving this surge in rental demand? Higher net migration, along with increased housing prices, combined with higher mortgage interest rates—all of which contributed to making the transition to homeownership financially prohibitive for many buyers. As those buyers continue renting in an attempt to wait out a sellers’ market, the result is a more competitive rental market as well.
Lack of affordable rental housing
Another concerning takeaway from CMHC’s 2023 Rental Market Report is the ongoing lack of affordable rental properties across Canada. For the lowest-income renters, the share of available rental units is critically low in most major markets.
Take Vancouver, for example, where only 1% of the available rental supply can be considered affordable for renters with the lowest 20% of incomes. Québec leads here with 25% of units affordable to lower-income Canadians, but otherwise, the overall national trend shows increasingly tight market conditions for low-income renters.
Due to this tightening of rental markets, rent growth (i.e. the increase in the cost to rent) reached a new high last year, with an overall price increase of 5.6%. In Toronto and Vancouver especially, higher rent growth reflected this widespread increase across the country. Average rents for a purpose-built 2-bedroom apartment in Toronto and Vancouver ($1,779 and $2,002, respectively) were both well above Canada’s national average of $1,258 last year—not coincidentally, these markets also have some of the country’s highest average home prices.
Increased rent for new tenants
Recent analysis from CMHC shows that new tenants are facing even tougher market conditions on top of this overall tightening, paying significantly higher rents compared to existing tenants. The average rent growth for 2-bedroom units that turned over to a new tenant was 18.3%, compared to the rent growth for similar-sized units retained by existing tenants—which went up by 2.9%.
This gap was even wider in Canada’s most populous cities. In Toronto, the average rent for a non-turnover 2-bedroom was $1,600 in 2022, while comparative units that experienced turnover cost new tenants $2,110 on average. In Vancouver, those figures stood at $1,847 and $2,325, respectively—although it’s worth noting that this is not solely a Toronto and Vancouver issue. This widening gap is also quite present in other urban markets across Canada, including Hamilton, London, Windsor, and Halifax.
These figures are symptomatic of an increasingly stressed housing supply, as rising demand drives scarcity, which in turn pushes rents higher as newly-vacated units return to an overheated market.
Restoring housing affordability
CMHC has estimated that an additional 3.5 million housing units are required to achieve affordability by 2030. Restoring housing affordability in Canada will require creative solutions to increase Canada’s rental supply until it matches up with demand.
This will necessitate more private-sector investment to build more supply, particularly in the rental sector. To help increase supply, CMHC launched the Rental Construction Finance Initiative, which aims to build more rental apartments in markets that desperately need it.
CMHC also provides additional incentives to support affordable rental housing projects, including mortgage loan insurance for multi-unit properties (i.e. buildings containing five or more units). By providing access to preferred interest rates, CMHC helps lower borrowing costs for the construction, purchase, and refinancing of multi-unit residential properties, and facilitates renewals.
CMHC also supports the Government of Canada in delivering the National Housing Strategy (NHS). The NHS consists of complementary housing programs and initiatives that aim to give more people living in Canada a place to call home.