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Rent Prices Soar in 2023 as Canada Faces Record Low Vacancy Rate

Rent prices in Canada soared last year as supply struggled to keep up with demand, leading to the lowest national vacancy rate on record since the Canada Mortgage and Housing Corp. began tracking that data...

Rent Prices Rent prices in Canada soared last year as supply struggled to keep up with demand, leading to the lowest national vacancy rate on record since the Canada Mortgage and Housing Corp. began tracking that data in 1988.

Rent prices across Canada experienced an unprecedented surge in 2023, resulting in the lowest national vacancy rate ever recorded. The Canada Mortgage and Housing Corp. (CMHC) recently released a report highlighting the scarcity of available rental properties, with a vacancy rate of just 1.5 percent during the first two weeks of October. This figure reflects a decrease from the previous year's rate of 1.9 percent, which had already been the lowest in over two decades.

Increased Demand Puts Pressure on Rental Market

The average rent for a two-bedroom purpose-built apartment, serving as a representative sample for the CMHC, grew by a staggering eight percent to $1,359 in 2023. This growth rate surpasses the 5.6 percent increase recorded in the previous year and exceeds the 1990-2022 average of 2.8 percent. Kevin Hughes, the CMHC's deputy chief economist, expressed that the data did not come as a surprise, as increased demand caused by population and employment growth has put significant pressure on the rental market.

"Demographic changes have certainly contributed to the substantial demand," said Hughes. "Newly arrived immigrants, young Canadians seeking their first homes, and older households in need of downsizing have all contributed to this ongoing trend."

Imbalance between Supply and Demand

With the home ownership market facing affordability challenges, particularly amid high inflation and interest rates in 2023, more Canadians are turning to rental options as a viable alternative. The secondary rental market has also experienced tightening, as evidenced by the average rent for a two-bedroom rental condo rising from $1,929 in 2022 to $2,049 in 2023. The vacancy rate for these units fell from 1.6 percent to 0.9 percent annually.

Unfortunately, the supply-demand imbalance remains a significant concern. Hughes highlighted that Canada's chronic lack of supply, combined with financing issues and labor shortages in the construction industry, does not bode well for substantial increases in supply anytime soon.

A note from National Bank of Canada economists Stefane Marion and Daren King emphasized that the report "confirms the extreme imbalance between supply and demand for homes that characterizes Canada's housing sector." They further predicted that this imbalance is likely to persist in the foreseeable future, as the Bank of Canada forecasts a population growth of about 800,000 in both 2024 and 2025, with only a limited increase in housing starts.

Regional Highlights: Calgary and Edmonton

Alberta's two largest cities, Calgary and Edmonton, stood out significantly in the CMHC's annual survey. Both cities experienced their lowest vacancy rates in a decade, with Calgary at 1.4 percent and Edmonton at 2.4 percent. Additionally, these cities witnessed the sharpest rise in rents among major Canadian cities in 2023.

Hughes attributed the accelerated demand in Calgary and Edmonton to population increases over the past year, driven by international immigrants as well as domestic migration from other provinces. These factors contributed to higher demand for rentals, while the supply remained relatively stagnant.

The Landscape in Major Canadian Cities

Toronto, Canada's largest city, recorded a vacancy rate of 1.4 percent, down from 1.6 percent in 2022. Montreal followed closely with a vacancy rate of 1.5 percent, compared to two percent in the previous year. Vancouver, known for its tight housing market, reported the lowest vacancy rate among major cities at 0.9 percent, similar to 2022 levels. Ottawa remained relatively flat at 2.1 percent.

Hughes explained, "Very tight markets usually entail heavier increases in rent, which we've seen. Yes, the rental market is more affordable than the ownership market, for sure, but even that market is becoming quite daunting for many."

The challenges faced by the Canadian rental market are clear, with rent prices skyrocketing and a shortage of available properties. As the housing sector grapples with this supply-demand imbalance, it's crucial to find sustainable solutions to ensure affordable housing options for all Canadians.