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Ask the average renter and they can tell you: Canadian rents have soared in recent years.
The latest data from Rentals.ca and Urbanation shows the average asking rent for all property types in May rose above $2,200 for the first time. That’s up 9.3 per cent year over year, the same jump seen the month before.
In some of Canada’s least affordable markets, like Toronto and Vancouver, two-bedroom apartments are now costing renters well over $3,000 a month.
And while rental rates remain well below that mark in most cities outside Ontario and British Columbia, cities such as Edmonton and Regina were recording average annual rent hikes in the double digits for single-bed units in May.
The average asking rent for two-bedroom apartments in cities across Canada from May 2024.
Urbanation/Rentals.ca
Economists who spoke to Global News say there are reasons for hope among Canada’s renters after years of mounting pressure in a tight market.
While efforts to boost rental supply and slow the pace of population growth in Canada should help to “at least stabilize” soaring rents in some parts of the country, experts warn renters should not expect to pay a lot less on their leases any time soon.
“Even if (rents) don’t grow as quickly, they’re still going to stay high,” says Randall Bartlett, senior director of Canadian economics at Desjardins.
Where are rents headed? Depends where you live
The stabilization in rents that experts are expecting is already underway in some markets.
The Rentals.ca and Urbanation data shows that the three-month average for rents across the country fell 0.4 per cent despite increases on a monthly and annual basis. The release classified this as a “moderation” in rents following sharp upticks last year.
And while Toronto and Vancouver remain among the most unaffordable cities for renters, the silver lining is that their annual change rates have started to dip negative.
Two-bed units in Toronto and Vancouver were down 2.0 per cent and 3.6 per cent year over year in May, respectively, with both cities seeing slight easing on a monthly basis as well.
Montreal holds firmly in the middle of the pack, with prices for one- and two-bed apartments rising in single digits annually but still remaining hundreds of dollars cheaper than Toronto and Vancouver levels.
It’s the more affordable markets like Saskatoon, Regina and Edmonton that are continuing to face soaring rents on an annual basis, even though their monthly costs remain well below cities in Ontario and British Columbia.
Bartlett says that rents might already have peaked in Canada’s most expensive markets as renters look to markets they can actually afford.
Those in Ontario and B.C. are increasingly looking to move out of the city for more affordable housing, recent polling from Angus Reid suggests. Nearly three in 10 Canadians surveyed said they were considering moving out of their province due to housing affordability.
Polling from Ipsos conducted exclusively for Global News earlier this year suggested that just over one in three respondents (36 per cent) would be looking for a new rental unit in 2024.
Recent immigrants in particular are reconsidering where they’ve landed, the Angus Reid survey shows, with two in five saying they’re considering moving to a different province or out of the country altogether.
“That’s why cities like Moncton and Calgary and Halifax are growing so rapidly, even though they’re not necessarily a hot spot for international arrivals,” RBC economist Rachel Battaglia says.
Relatively affordable Alberta remains the most popular destination for relocating Canadians, the Angus Reid survey showed. But that demand is also what’s driving rents to soar in markets like Edmonton, Bartlett says, which saw 16.4 per cent growth in average rents for one-bed units in May.
“We’re seeing an enormous influx of not just international migrants coming to Alberta, but migration from the rest of the country, as young Canadians look for more affordable pastures.”
Pace of building has held strong
One of the reasons rents have been soaring is the same reason many homeowners are paying more on their mortgages: higher interest rates from the Bank of Canada.
While Canadians with mortgages typically experience rate hikes more directly than renters as they renew into the higher borrowing cost environment at the end of their term, these pressures filter down to the renting population as well, Bartlett notes.
Landlords face financial pressures when their mortgages become more expensive, which can lead them to pass higher costs onto their tenants, for example. On top of higher rates, rising costs for renovations and utilities have been fattening up monthly rental bills, Bartlett says.
“Certainly costs across the board have been helping to push rental costs higher as well,” he says.
Higher interest rates also make it more difficult to break into the housing market, leaving a growing pool of renters vying for the same scarce rental supply.
But there’s one part of the equation that’s held strong despite higher interest rates: the pace of new rental construction.
Rental housing starts surpassed 80,000 in both 2022 and 2023, outpacing the pre-pandemic average, according to a report this week from Royal Bank of Canada. Builders are on pace to surpass those levels in 2024, RBC projects.
“That’s no small feat,” says Battaglia, who authored the past week’s report.
She tells Global News that there’s no shortage of barriers to getting shovels in the ground lately. High borrowing costs tend to discourage new projects in the same way they might hold back a homeowner from undertaking a renovation, and Canada is facing a noted labour shortage in the construction industry on top of rising costs for materials globally.
Despite these barriers, Battaglia says incentives from the government and a clear indication of persistent demand in the rental market is helping to convince builders to scale up their efforts.
With hopes to double the pace of homebuilding in Canada, the federal government’s latest budget came with a suite of announcements, including waiving GST on purpose-built rentals and accelerated capital cost allowances for apartment construction.
In addition to those moves, Battaglia notes that municipal and provincial governments have put forward their own initiatives, such as cities loosening zoning restrictions to attract federal housing dollars.
“It’s great to see those collective efforts and we feel that they’ve clearly been paying off,” she says.
“Of course, there’s more to be done, but it’s great to see that progress.”
Population growth will matter to rents
Despite progress on the supply side of the equation, experts like Bartlett point to demand — the number of people out there looking for apartments — as the key driver for the cost of rents going forward.
Canada’s population has soared in recent years. The country added more than 1.2 million people in 2023, marking the fastest pace of annual growth since 1957, according to Statistics Canada. Temporary immigration accounted for two per cent of the 3.2 per cent growth rate.
Desjardins expects rental inflation to “slow considerably” in the months ahead, Bartlett wrote in a recent report, thanks largely to Ottawa’s stated plans to cap levels of non-permanent residents (NPR). The federal government is seeking to bring down the share of NPRs to five per cent of Canada’s population over the next three years, down from current levels of 6.2 per cent.
“If the federal government is successful … that will take pressure off of the rental market in Canada at a time when we’re seeing supply coming online in a way that it hasn’t in the past,” Bartlett says.
“If we get some relief on the demand side and additional units on the supply side, that should help to at least stabilize price growth in Canada.”
But curbing the flows of temporary migrants now is not going to make it much easier for existing renters who are looking for a new home, Battaglia notes.
Canada needs a “supply injection to help rebalance” the rental market, she argues, but the latest slate of units coming online are likely to be absorbed almost immediately by the backlog in demand that’s built up over recent years.
That will limit the impact that any new rental units will have on prices in the near future, Battaglia says.
“We think big additions to the rental housing stock should help ease some of the pressures off. But again, we’re coming from a really, really tight starting point,” she says.
“So do I think that rents are going to fall? Unlikely, at least not at the national level.”