Canada’s real estate slump is hitting the rental market. Rentals.ca data shows average rent fell in December, now at the lowest level since mid-2023. High-priced cities accounted for virtually the whole drop, while affordable cities led growth. The divergence has cut the gap between the most and least expensive cities in half. Are expensive markets now looking cheap—or did “affordable” cities become overpriced?
Canadian Rental Prices See Biggest Annual Drop In 4 Years
The national asking rent slipped further last month. The monthly average fell 0.7% (-$14) to $2,060 in December, bringing prices to the lowest since June 2023. It was the fourth consecutive drop, leaving monthly prices 2.3% (-$48) lower than last year. It was the largest annual drop since 2021, but it may not feel like much relief after a 32% surge from April 2021 to May 2024.
Demand Is Cooling—It’s Not Just About More Supply
Falling national prices aren’t just due to rising supply, cooling demand also helped. On the supply side, the low-rate-fueled investment boom is now seeing completions. On the demand side, the recent immigration caps have moderated pressure. The combination is pushing vacancy rates higher, reducing upward pressure on prices.
Virtually all relief is in expensive, investor-driven core cities. Without a sharp correction, the speculative mindset remains. This is likely a major contributor to the regional divergence we’re about to get into.
Canada’s Most Expensive Cities See Rents Drop, Cheap Cities Climb
Not all cities are equal, but when it comes to rents, they’re converging. The national average rental price has dropped, driven by the most expensive markets. Annual declines were sharpest in Vancouver (-7.9%), Toronto (-5.1%), and Calgary (-5.0%).
In contrast, the most affordable markets logged significant growth in recent years. The fastest price growth in the past 3 years is seen in Edmonton (+17.4%) and Montreal (+7.5%). The price floor is rising, while the ceiling is moving lower. This suggests demand is saturated at the higher end, but remains viable at the bottom—for now.
The narrowing rent gap is one of the major and overlooked trends in the market. Three years ago, Vancouver’s average asking rent was 138% (~$1,800) higher than Edmonton, the most affordable of the six major cities. By last month, that spread narrowed to 74.8% (~$1,136), shrinking ~63 points in just three years.
This resembles real estate price contagion: exuberance in major hubs drives people to chase affordability. When this happens, prices aren’t driven by fundamentals like jobs and amenities. Instead, prices rise based on the relative discount to expensive cities. Sure, it’s expensive—but it’s cheaper than Vancouver, right?
The Bank of Canada suggested this dynamic was at play with home sales a few years ago. Probably not a coincidence that the cities that led home price growth are now leading for rent growth.
For investors, this presents a new risk. If a market’s appeal is a discount to an exuberant city, and that premium corrects, does the spread remain? As the affordability gap narrows, the relative value disappears—along with the demand.
This will make it more difficult for new Purpose Built Rental Projects to be financially feasible to build.
but also more cost effective to build homes, as the two are inverse. Homeownership is a bigger issue imo, not taxpayers building assets for well-connected friends.
Gotta scramble to get to that 6.8% unemployment rate in Edmonton. Just like Newfoundland is leading higher for prices with virtually no job market outside of the gov and gov contractor handouts.
Let’s be frank. Exuberance is the polite way to say bubble without triggering the mindless real estate bros.
The reality is investors overpaid and are now trying to pass those rents onto people. That’s why the places with the most price growth saw the most rental price growth.
Real landlords that do the boring things like spreadsheets and cashflow analysis, but don’t get the insider gov subsidies, would never touch such extended values. They understand you might be able to get a few months of rent, but the ultimate goal is sustainable rents.
If we push rents too hard we end up with turnover every 12 months, and that pushes our cost of operation even higher. Especially since playing tenant roulette means good tenants move out at the end of the term and the bad ones will trash the place or stop paying rent before leaving. Risk reward, kids. Learn and live by it.
So, looks like it was uncontrolled immigration after all. Sadly, I believe the good ones will leave and Canada will be stuck with the grifters. Personally, I am hearing of well-qualified professionals (people with choices) emigrating to the U.S. or returning to countries of origin.
Wow, Susan,
When all you’ve got is a hammer (a narrative), then no matter the true cause of a negative societal issue you’ll be looking to wail on the “grifter immigrant” nail.
I’m far more convinced by the narrative of speculators going out of market as the bubble grew to unprecedented heights in the major centres, their greed raising the cost of living for everyone in smaller centres through AstroTurfed capital investment inflating those bubbles, now folks in these smaller communities are getting squeezed as speculators bought up significant volume of assets / homes and now want inflated returns to offset their increased debt load.. parasites in the vein of private equity; buy up real assets then leverage the debt onto the asset (and the person’s that will pay for the debt acquired by the speculator.. what value did they bring into the world the earns them this wealth, nothing, just manipulating markets to get theirs, fk everyone else.. parasites)
If President Trump follows through with his prohibition of Hedge Funds etc gobbling up massive swaths of purpose built rental homes thus eliminating the main wealth building item of young buyers lives, then maybe the Carney government will take note, but alas, I fear it’s too late for Canada. That ship has sailed.
The cure may have to be a US style 2008 Meltdown to get back to an equilibrium that stagnant wages may be able to live again.