What's Behind the Canadian Rental Market Increases?

In recent years, the Canadian rental market has been making headlines due to consistent and often substantial increases in rental prices across major cities and regions. According to CTV News, the average asking price for a rental unit in Canada reached a record high of over $2,000 in June 2023.¹ Furthermore, rents rose by 1.4% from May, marking the most rapid month-over-month increase for units listed on Rentals.ca so far this year.

To comprehend the complex interplay of factors responsible for these increases, let’s dive deeper into the multifaceted landscape that underpins the Canadian rental market.

Supply and Demand

One of the primary drivers behind the rental market increases in Canada is the interplay between supply and demand. The demand for rental properties has been steadily rising due to a multitude of factors, such as urbanization, immigration, and shifting homeownership preferences. In October 2022, rental demand outpaced growth, with the number of occupied units increasing by about 79,000 units (+3.8%).²

At the same time, the supply of available rental units has struggled to keep pace with this demand. While rental supply increased by about 55,000 units in 2022 (+2.6%), it couldn’t keep pace with demand, resulting in the lowest national vacancy rate since 2001.²

Unattainable Housing Prices

Although housing prices have recently dropped from their 2022 peak, they still remain unaffordable for many.³ In March 2023, mortgage rates soared by over 170 basis points, making mortgages less affordable. Consequently, people are choosing to rent instead of buying.

Economic Growth and Employment Opportunities

Canada’s economic growth and employment opportunities have attracted a steady influx of individuals seeking improved job prospects and a higher quality of life in urban centers. This migration has caused the demand for rental housing to surge, intensifying competition among renters and driving up prices. In addition to an increasing workforce, a related factor is the increase in the number of nonpermanent residents, including foreign students, who rent.¹

Real Estate Investors

The influence of real estate investors is a significant factor contributing to the rise in Canada’s rental market. According to Statistics Canada, more than one in five property owners (21.9%) were investors in 2020.⁴ In addition, the growth of short-term rental platforms, such as Airbnb, has diverted some properties away from the traditional long-term rental market, further straining supply.

Population Growth

Canada’s open immigration policies have resulted in consistent population growth, particularly in metropolitan areas. Newcomers often rely on rental housing upon arrival, further intensifying the demand for rental properties. Accommodating this influx has strained the rental market, leading to higher rents, particularly in cities with strong immigrant communities.

Government Policies and Regulations

Government policies and regulations play a significant role in shaping the rental market landscape. In Canada, various government policies aim to strike a balance between protecting renters and encouraging real estate investment. Rent control measures, which limit annual rent increases, can impact rental pricing dynamics. While they provide relief to existing tenants, they may also discourage new construction and investment in rental properties, exacerbating supply constraints.

The surge in Canadian rental market prices is caused by various interrelated factors, with supply and demand dynamics, economic growth, real estate investment trends, government policies, population growth, and affordability concerns all shaping the trajectory of the rental market.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.