There's no end in sight to Canada's rent affordability crisis
Canada’s rental market is a familiar thorn in the side of aspiring first-time homebuyers, with the skyrocketing cost of renting a home in many markets weighing heavily against paychecks and their ability to stump up a downpayment.
Rental pressures eased slightly in the fall – but the outlook across major markets remains bleak, if a recent study by the national housing agency is anything to go by.
Canada Mortgage and Housing Corporation (CMHC) said in its fall rental market report that while most census metropolitan areas saw rent growth slow in 2024, new tenants faced a 23.5% spike in rental costs – and despite a surge in supply, available inventory remains well below 10-year averages.
Even that improvement on the supply front comes with an important caveat, according to CMHC’s deputy chief economist Tania Bourassa-Ochoa (pictured top): namely, that relief is not arriving for the vast majority of Canadian renters.
“One of the things that was really interesting for me to see was that a lot of market easing going on is really more evident with the newer units [being] more expensive units,” she told Canadian Mortgage Professional.
“This new supply is definitely contributing to some easing, but for many renters a lot of these newer units are just simply unaffordable. So it does help to alleviate some pressures for the higher income or even to some extent medium-income renters. But in the end, affordability challenges are still very persistent.”
Falling interest rates and regulatory changes are driving renewed activity in Canada's housing market. Christopher Alexander of Re/Max Canada predicts a robust year as first-time buyers return, but rising competition could elevate prices.https://t.co/yjncCi0u0X
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 3, 2025
Is there any cause for optimism on the rental front in Canada?
The report concluded that slower rent growth has been accompanied by no improvement in affordability, with rents increasing at a faster clip than wages for the 25-44-year-old renting cohort.
Still, Bourassa-Ochoa highlighted filtering – gradually transitioning housing units to lower-income households from higher-income households as newer units complete – as an important positive for the long-term housing market outlook.
“The filtering effect technically says that by adding these units to the market, even if more expensive and even if responding to the immediate needs of higher-income people, in the longer run these units will contribute to more affordable markets because you’re adding a steady flow of supply into the market,” she explained.
“And so these units, while expensive, in the long term their increase in rent will slow down and so they could eventually become a little bit more accessible or affordable for medium-income households.”
Affordability issues remain persistent in rental market
The average two-bedroom rent in the purpose-built rental market was $1,447, according to CMHC, while in the condo market it came in at $2,199. Vacancy rates in the purpose-built rental space were 2.2%, compared with 0.9% for condos.
Close to 140,000 purpose-built rental units are currently under construction, meaning more of that supply is set to come to market as 2025 progresses. That’s another important step towards affordability, Bourassa-Ochoa said – but in the immediate future, there appears little sign of an improving rental picture.
While overall rent price growth has slowed from about 8% in 2023 to 5.4% in 2024, it continues to outpace other areas including non-shelter costs. “In the short term, in the medium term, those affordability challenges are still very, very persistent,” she said. “There are a lot of indicators that are pointing in that direction.”
What’s more, although rent arrear rates slid slightly on a year-over-year basis, they remain significantly higher than mortgage arrears, CMHC said – showing that renters are struggling more than homeowners in navigating financial stress.
Rent arrears were highest in Ontario, one of the priciest provinces for rent in Canada – and across the country, approximately 180,000 units have a rent in arrears at present. “It’s quite significant, especially when you compare it to the mortgage side,” Bourassa-Ochoa said. “When you’re looking at other credit products specifically for renters, there are a lot of signs there too that financial pressure and stress are being felt.
“So long story short: a lot of supply has come to the market and that’s great in the long term. But in the short term, there are still those pressures and that financial stress is definitely being felt.”
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