Alarm bells are sounding again over a housing shortage in Canada, this time in the rental market.
An analysis from RBC Economics warned that unless the pace of construction of rental housing accelerates, the current shortage of 30,000 units could quadruple to 120,000 by 2026. The report’s authors estimated that 332,000 new units will be needed between now and 2026 to achieve a balance between vacancy rates and rental affordability.
The rental market is being squeezed by a couple of factors, said authors Robert Hogue and Rachel Battaglia, including a massive wave of immigration and declining housing affordability due to rising mortgage rates. “With Canada’s immigration targets set at record levels and affordability poised to remain stretched, the pressure isn’t likely to let up,” they wrote.
Statistics Canada helped make their point. The agency reported March 22 that Canada’s population increased 2.7 per cent in 2022, an increase of more than one million people, the biggest increase on record. Further, “immigration accounted for nearly all growth recorded (95.9 per cent),” Statistics Canada said.
Last year was a record year for rental housing construction, with 70,000 units completed, the highest rate of completion in almost a decade. Yet Hogue and Battaglia estimate that construction will need to grow at an annual pace of 20 per cent above last year’s rate to avoid a serious shortage. Calgary and Ottawa-Gatineau recorded the biggest increases in rental stock at 7.4 per cent and 5.5 per cent, respectively.
The smallest increases were in Toronto (2.1 per cent) and Montreal (1.4 per cent), even though the cities are the among the most popular destinations for newcomers.
Despite the increase in 2022, vacancy rates and rental prices have continued to deteriorate across the country, the economists said. For example, the vacancy rate for rental-built housing dropped to 1.9 per cent in 2022, the lowest level in 21 years and the biggest one-year drop in more than three decades, they said.
A healthy vacancy rate is three per cent, RBC said.
Because vacancy is so tight, competition has intensified, lifting rental prices along the way. In Canada, rent for a two-bedroom unit rose 5.6 per cent in 2022. Some of the highest increases were recorded in Ottawa-Gatineau at 9.1 per cent, Toronto at 6.5 per cent, and Calgary at six per cent.
“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,” Hogue and Battaglia said.
Still, a separate report from housing website Zoocasa showed that renting remained much more affordable than buying a home.
Zoocasa calculated the monthly mortgage payments versus monthly rent for 21 markets across Canada. It found that owning was cheaper than renting in only two cities, Winnipeg and Quebec City. In Winnipeg, the average monthly rental payment was $1,435, compared with $1,360 for monthly mortgage payments. In Quebec City, rent was $1,355, compared with mortgage payments of $1,300.
The largest spreads between rent and monthly mortgage payments were measured in Vancouver, $3,136 versus $4,361, and Toronto, $2,908 versus $4,499.
Rents have fallen approximately two per cent over the past three months, Zoocasa said, citing data from Rentals.ca. However, the housing platform noted that population continues to “outpace” housing, meaning finding a roof to put over one’s head will remain top of mind for many Canadians.
“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,” said RBC’s Hogue and Battaglia.