The Canadian rental market is set to experience a significant cooling period in 2025 as increased housing supply and a shift among renters towards home ownership are expected to take effect. October 2024 marked a pivotal moment, being the first month in three years where the asking rent for units across the nation decreased. Notably, Toronto and Vancouver, the country's two most expensive cities, led this decline.
The rapid increases in rent seen in recent years are unlikely to persist into 2025. The six largest census metropolitan areas in Canada experienced a combined drop of 3% in rental prices in 2024. While housing starts declined in Vancouver, Toronto, and Ottawa, cities like Calgary, Edmonton, and Montreal saw an uptick. This change signals a shift in the rental landscape across the country.
Giacomo Ladas highlighted the recent trends, stating:
“This comes after record-breaking growth in 2022 and 2023. Rental prices are so expensive, like, they’ve blown up.”
Despite some relief, high interest rates over the past two years might dampen construction momentum. Nonetheless, last year marked Canada's largest gain in purpose-built rental supply in over three decades. The average rent for a two-bedroom purpose-built apartment rose by 5.4% to $1,447 in 2024. Many of these new high-rises were projects initiated when borrowing costs fell during the pandemic, underscoring their long gestation periods.
Tania Bourassa-Ochoa commented on the current state of the rental market:
“It’s definitely a little bit of a breath of fresh air. That said, the rental markets across Canada are still very, very tight.”
The average asking rents fell by 3.2% nationally to $2,109 in December year-over-year, reaching a 17-month low. This decrease follows notable increases in previous years, with the average asking price of a rental unit climbing by 4.6% in 2021 and an impressive 12.1% in 2022.
Forecasts suggest that 2025 will present a more attractive rental market landscape due to the influx of new supply. Purpose-built rent growth is projected to ease to a range of 3-4% this year. However, most major cities continue to face an undersupply of rental stock, making sustained relief for tenants challenging.
Giacomo Ladas provided insights into future expectations:
“The first half of 2025, at least, I think we can expect … the most affordable markets will continue to see higher demand and the most expensive markets will continue to see lower demand, and rents are going to keep coming down.”
He also cautioned against assuming long-term stability:
“But I think that these rental prices coming down should be looked at more as a temporary thing.”
The issue of long-term undersupply remains pressing:
“We’re going to see long-term undersupply of units continue,” Ladas added.
Rachel Battaglia sees this period as an opportunity:
“golden opportunity for Canada to catch up.”
The market dynamics have led to increased movement among renters. Incentives are reappearing as landlords strive to attract tenants. Giacomo Ladas remarked on this trend:
“What we’re seeing is tons of movement. Incentives are now coming back into units.”
Rachel Battaglia noted the significance of this moment:
“We’re at a little bit of a turning point.”
Tim Hill observed:
“People have been trying to stay put.”
Interest rates are expected to decline in 2025, potentially aiding renters in transitioning to home ownership. Sondhi remarked on this development:
“Interest rates are also likely to push lower in 2025, helping renters make the transition to home ownership.”
