Canada’s rental markets in even worse shape post-pandemic
One indicator that life is getting back to normal is the return of some of Canada’s pre-pandemic ills. For example—declining rental affordability. While some might have expected cities to recover slowly from COVID, rental markets in Canada’s cities are even tighter than they were in 2019. So we’re right back where we started, and trending in the wrong direction.
The Canada Mortgage and Housing Corporation recently released its latest Rental Market Report, which summarizes the previous year’s rental market dynamics at the national and metropolitan levels. Among the most significant findings, Canada’s rental vacancy rate fell to 1.9 per cent—the lowest it’s been since 2001. In other words, fewer than two per cent of rental units nationwide were available to prospective renters, far below the average of 3.2 per cent from the past three decades.
Previously, only chronically-undersupplied markets such as the Toronto, Vancouver and Victoria metropolitan areas saw rental vacancy rates fall consistently below two per cent. Now, markets including London, Waterloo Region, Peterborough, Hamilton, Kingston, Gatineau, Quebec City and Halifax have all fallen below this threshold. In fact, many of these cities have lower vacancy rates than Toronto.
Low vacancy rates are bad news for current and prospective renters. Fewer units available to rent doesn’t just impact how difficult it is to find a place, it also impacts how much renters pay. Rents are inversely correlated with rental vacancy rates, meaning that if vacancy rates go down, rents go up (and vice versa). Indeed, average rents for two-bedroom units in the primary (built for renting) rental market rose 5.6 per cent year-over-year Canada-wide, with even greater increases in many of the cities mentioned above.
Tight rental markets also have negative economic and social consequences. High rents and low rental availability dissuades workers from moving in search of better job prospects, as higher living costs outweigh potential wage gains. Further, worsening rental prospects can undermine federal and provincial immigration policies. As an essential source of housing for many (if not most) new arrivals, properly functioning rental markets play a key role in accommodating a growing Canada.
With the pandemic in the rear-view mirror, Canadian cities must adjust to the reality that housing demand is back with a vengeance, meaning they should allow more housing to be built if they want to restore functioning rental markets. This is no longer just a Toronto and Vancouver issue. Smaller metropolitan areas with tight rental markets must also start building more housing to avoid chronically low vacancy rates and high rents.