Canadian Rental Market Faces Future Supply Risk
Canada's rental market showed signs of stabilization in early 2026, providing some relief from rising prices. However, a new report warns that current slowdowns in housing construction could lead to a significant tightening of rental supply by 2028. This looming shortage poses a long-term risk to housing affordability.
- The current stabilization in the rental market is partly due to the national vacancy rate for purpose-built rentals rising to 3.1%, a level higher than the 10-year average. This increase in available units is a result of a record number of rental completions in the past few years. - A significant factor in the cooling rental market is a slowdown in demand, influenced by a decrease in immigration and fewer non-permanent residents, such as international students. For instance, immigration declined by 18% year-over-year, and the country saw a net loss of over 290,000 non-permanent residents. - Despite the current relief for renters, housing starts are projected to decline through 2028, falling below the historical 10-year average. Econometric models project housing starts to be around 235,000 units in 2027 and 200,000 units in 2028. - The construction slowdown is particularly severe in the condominium sector, which has seen a sharp drop in pre-construction sales. In 2025, apartment starts fell by a staggering 80% in Toronto and 7% in Vancouver. - This decline in new construction is attributed to several factors, including economic uncertainty, high construction costs, and weaker demand from homebuyers, which makes builders more hesitant to begin new projects. - While purpose-built rental construction has been a strong point recently, even this sector is expected to moderate as the market becomes more balanced. This shift is happening as developers who might have built condos are now turning to rental projects. - The Canada Mortgage and Housing Corporation (CMHC) has warned that to restore housing affordability to 2019 levels by 2030, Canada needs to build 3.5 million more homes than its current pace, a target that is becoming increasingly challenging to meet. - The long-term risk is that the current dip in housing starts, which can take several years to translate into completed units, will lead to a renewed shortage of rental supply by 2028-2030, putting upward pressure on rents once again.
