RBC Economics estimates there is already a 25,000—30,000-unit deficit in Canada’s purpose-built rental stock and the shortfall is likely to grow exponentially over the next four years as demand soars.
By 2026, the rental housing gap could reach more than 120,000 units, nearly four times the estimated shortfall today, according to a new report.
“Canada will need to add 332,000 units to its current rental stock between now and then to achieve a balanced market with rent stability. That would represent roughly a 20 per cent increase in the annual pace of construction achieved in 2022 (when 70,000 rental units were completed),” it said.
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“Turning condo units into rentals, converting commercial buildings and adding rental suites to existing homes would certainly help ease the pressure. But these responses are unlikely to be enough. The best way to meet current and future demand, as well as provide stability (and hopefully greater affordability) in the rental market is to considerably grow the supply of purpose-built rentals.”
The report said Canada’s stock of rental housing boomed in 2022, growing at 2.4 per cent—the fastest pace since 2014.
“That boost has never been needed more. With affordability challenges pushing home ownership rates to a 30-year low and annual federal immigration targets set to grow 8% by 2025, strong demand for rented accommodation is unlikely to ease,” said RBC.
“The growth in supply has been uneven across the country. Among Canada’s six largest CMAs, the biggest gains in purpose-built rental stock were in Calgary (+7.4 per cent) and Ottawa-Gatineau (+5.5 per cent). The smallest percentage increases were in Canada’s most populous cities—Toronto (+2.1 per cent) and Montreal (+1.4 per cent). The latter urban centres are among the most popular destinations for newcomers, welcoming an estimated 32 per cent and 10 per cent of international immigrants respectively last year. The slow growth in rentals in these cities will be especially problematic as demand for rented accommodation continues to outgrow supply.”
The report said Canada’s current purpose-built rental stock is struggling to keep up with demand. The vacancy rate in this category plunged to its lowest point in 21 years in 2022, dipping to just 1.9 per cent.
“The total decline—120 basis points in just 12 months—represented the steepest single year decrease in more than three decades. And relentless competition for units drove the highest annual increase in rent growth on record. Overall, rent growth for a two-bedroom purpose-built unit rose 5.6 per cent with jumps in Gatineau (+9.1 per cent), Toronto (+6.5 per cent) and Calgary (+6.0 per cent) among the highest in Canada last year,” added RBC.
“And that isn’t the worst of it. A closer look at the rental condo market in some of Canada’s larger cities reveals an even tighter squeeze. Condo rental vacancy rates in Ottawa-Gatineau (0.7 per cent), Toronto (1.1 per cent), and Calgary (1.8 per cent) are among the lowest in the country—suggesting intense competition that will only add pressure to rents.
“The rapid absorption of these new units highlights the severity of the “rental housing gap”—that is, the difference between the projected rental stock at the current rate of increase and the rental stock required to achieve balance (or a 3% vacancy rate) while keeping up with future demand. It also demonstrates the blistering speed at which the appetite for rented accommodation is growing. With high levels of in-migration and a widespread shift to rental housing continuing due to affordability struggles, we don’t see Canada returning to that optimal three per cent vacancy rate without a significant acceleration in supply.”
(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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