Demand accelerated due to a rebound in immigration and stronger purchasing power, says deputy chief economist
Canada’s rental sector dynamics in 2022 reflected a tightening in many markets nationwide, with considerable increases in rents being a particular area of concern, according to Kevin Hughes, deputy chief economist at Canada Mortgage and Housing Corporation (CMHC).
Ove the past year, Canada’s rental housing experienced significantly higher demand due to a sharp rebound in immigration and stronger purchasing power stemming from vibrant employment markets, Hughes said.
“Supply [was] unable to adjust to demand, despite an increase in construction,” Hughes said. “Rising interest rates [have also] reduced home ownership for many tenants.”
And while letting market dynamics take their natural course could lead to restoring some market balance soon, “we must ask ourselves whether these forces alone are sufficient at present,” Hughes added. “If the lack of interest of investors for the rental sector (currently observed) continues, the shortage of rental housing is likely to increase further.”
The resulting decrease in rental affordability has worrisome implications for both the near future and the long term.
“In addition to the most vulnerable segments, access to housing for future economic contributors (youth, ready to form a new household) is delayed,” Hughes said.
Average asking rents in Canada went up by 6.5% annually to reach $2,014 in May, according to a recent study by Rentals.ca and Urbanation.
The report warned that further upward pressure is anticipated “in the coming months as the population continues to expand at a record pace and home ownership affordability worsens following the recent upward momentum in housing prices and additional increase in interest rates.”
Hughes said that these trends stress the urgency of forming a broad-ranging policy response.
“To fill [these gaps], the short- and long-term prospects of all market participants will have to be considered,” Hughes said. “Ensuring that Canadian households have access to affordable housing while encouraging private sector investment is a challenge, but there are few alternatives.”
