Canada is experiencing a severe shortage of rental housing, and a recent report from RBC indicates that significant growth in the supply of purpose-built rentals is necessary to meet current and future demand.
According to the report, from economists Robert Hogue and Rachel Battaglia, Canada’s rental housing stock grew by 2.4 per cent last year, the fastest pace since 2014.
The country’s record-breaking pace of apartment construction in 2022 has been a welcome development amidst rising affordability challenges and increasing demand for rental housing.
However, the growth has been uneven across the country, with the biggest gains in purpose-built rental stock being in Calgary and Ottawa-Gatineau and the smallest percentage increases in Toronto and Montreal.
Intense demand drives rent increases
Despite the growth, the rental housing market is struggling to keep up with the high demand, and the vacancy rate in this category reached its lowest point in 21 years last year, 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, Hogue and Battaglia explain.
Additionally, there has been an unprecedented rent increase in the rental market, with rent growth for a two-bedroom purpose-built unit rising by 5.6 per cent in 2022, and even higher in some cities such as Gatineau (+9.1 per cent), Toronto (+6.5 per cent), and Calgary (+6.0 per cent).
Condo market squeeze
A closer look at the rental condo market in some of Canada’s larger cities reveals an even tighter squeeze, with condo rental vacancy rates in Ottawa-Gatineau, Toronto, and Calgary among the lowest in the country, indicating intense competition that will only add pressure to rents.
Furthermore, the report highlights the severity of the “rental housing gap,” which is the difference between the projected rental stock at the current rate of increase and the rental stock required to achieve balance and keep up with future demand.
Canada could be short more than 120,000 rental units by 2026
The economists estimate there is currently a 25,000 to 30,000-unit deficit in the country’s purpose-built rental stock and expect this shortfall to grow exponentially over the next four years as demand soars.
The report predicts that Canada could be short more than 120,000 rental units by 2026, nearly four times the estimated shortfall today.
To achieve a balanced market with rent stability, RBC economists say Canada will need to add 332,000 units to its current rental stock between now and then.
Hogue and Battaglia say that while converting commercial buildings, turning condo units into rentals, and adding rental suites to existing homes would help ease the pressure, these measures alone are unlikely to be sufficient.
The economists explain that the best way to meet current and future demand, as well as provide stability and affordability in the rental market, is to considerably grow the supply of purpose-built rentals.
Read the full report from RBC here.
