Rent prices in Canada skyrocketed last year as supply struggled to keep up with demand, leading to the lowest national vacancy rate on record since Canada Mortgage Corporation and Housing began tracking this data in 1988.
The federal housing agency said in a report Wednesday that the vacancy rate for purpose-built rental apartments was 1.5% in the first two weeks of October 2023, when it conducted its annual survey .
That figure is down from 1.9 percent a year earlier, which at the time represented the lowest national vacancy rate in more than two decades.
The average rent for a purpose-built two-bedroom apartment, which CMHC uses as a representative sample, increased by 8% to $1,359 in 2023. This growth figure is up from the average increase of 5.6% of rent recorded in 2022 and above the 1990-2022 average of 2.8 percent.
The data “didn’t surprise us at all,” said Kevin Hughes, deputy chief economist at CMHC. Although the supply of rental housing increased in most Canadian cities last year, it was not enough to keep pace with increased demand pressures caused by population and employment growth.
“The demand due to demographic changes is undoubtedly substantial,” Hughes said.
“You obviously have newly arrived immigrants, but you also have young Canadians looking for their first home and you also have older households that are having to downsize.”
Supply-demand imbalance ‘likely to persist’
He said that with affordability issues plaguing the home ownership market, particularly amid last year’s high inflation and interest rates, more and more Canadians are turning to leasing options.
The agency said the average rent for a two-bedroom rental condo was $2,049, up from $1,929 in 2022, with the secondary rental market also tightening as the vacancy rate for these units going from 1.6 percent to 0.9 percent per year.
“We have a chronic lack of supply in Canada and the statistics are really not, let’s say, encouraging in terms of additional new supply or substantial increases in supply,” Hughes said.
“During the current year, we likely expect there to be delays in some projects due to funding. There are also, in many markets, labor shortages for construction.”
The report “confirms the extreme imbalance between supply and demand for housing that characterizes the Canadian real estate sector,” indicates a note from economists Stefane Marion and Daren King of the National Bank of Canada.
Both men predict the imbalance “will likely persist for the foreseeable future,” with the Bank of Canada projecting population growth of about 800,000 people in 2024 and 2025, “with only a limited increase in housing starts.”
Calgary and Edmonton see accelerated demand
Hughes said Alberta’s two largest cities stood out the most in CMHC’s annual survey. Calgary and Edmonton both saw their lowest vacancy rates in a decade, at 1.4 per cent and 2.4 per cent respectively, as well as the largest rent growth among major cities in 2023.
Calgary’s vacancy rate was down from 2.7 per cent in 2022, while in Edmonton it saw a decline from 4.3 per cent. Hughes said population increases over the past year have accelerated demand for rentals in these areas while supply has not increased substantially.
“These were markets that were, let’s say, more balanced last year,” he said.
“The increase in population was coming from an international source with immigrants, but also domestically – so people coming from other provinces to Alberta or even to Calgary and Edmonton from Alberta.”
Canada’s largest city, Toronto, recorded a vacancy rate of 1.4 percent, down from 1.6 percent in 2022, while Montreal was at 1.5 percent, down by compared to 2 percent.
Vancouver, at 0.9 per cent, had the lowest vacancy rate among major Canadian markets, but it was comparable to 2022 levels. Ottawa also remained stable at 2.1 per cent.
“Very tight markets generally lead to larger rent increases, as we have seen,” Hughes said.
“Yes, the rental market is certainly more affordable than the ownership market, but even that market is becoming quite intimidating for many.”