Rental prices in Canada have been driven by more than just population growth. A new Bank of Canada (BoC) research paper breaks down the factors that can explain the recent surge in 1 bedroom rents from 2020 to 2026. They found that financing costs made a big contribution to higher rents, especially when rates began rising. However, the researcher still couldn’t determine what drove the initial surge at the start of 2020, before the drivers we all accept as the reason, began to appear.
Canadian Asking Rents Have Surged Over 20% Since 2021
Canadian asking rents have surged over 20% since 2021, according to the researchers. Looking at what landlords were asking for a one-bedroom apartment across a nine-city series shows a roughly 27.3% increase from Q4 2021 to Q4 2023. It’s followed by a contraction that ran until Q2 2026, but prices remain 21.0% higher than they were in Q4 2021.
As we all know, the distribution—and partial correction—varied widely by region. As BoC researcher Benjamin Straus writes, “asking rents rose sharply in nearly every major city, notably in Halifax, Québec and Calgary.”
From Q4 2021 to Q4 2023, the index shows the sharpest climbs in Calgary (+45.1%), Halifax (+32.4%), and Quebec City (+31.3%). Meanwhile, the sharp declines between Q4 2023 and Q2 2026 were led by Vancouver (-10.9%) and Toronto (-10.7%).
The surge is largely attributed to population growth, but Straus’ data reveals that was only one of the factors.
Canadian Rents Driven By Population Surge and Financing Between 2021-2024
First off, it’s important to differentiate between a factor that can explain growth statiscially and definitive cause. A tax levy doesn’t automatically flow through to rents, and X number of people don’t mean y dollars more in rent. These are estimates of what can be reasonably explained by these factors.
The analysis points to renter-household growth and financing rates as the main drivers. In 2022, the peak of the housing market and when rates began to climb, asking rents were 15.8% higher y/y in Q4. The researchers model shows household growth added 7.9 percentage points (ppts) of the growth in that period, while financing added another 7.0 ppts. This was the lion’s share of the period, with renter-households accelerating to 10.1 ppts by Q4 2023, while financing eased to 1.3 points of y/y growth. Straus writes that rising interest rates were “another key reason” for rent increases in 2022 and 2023.
Reconstructing the central bank’s index shows the growth in renter households could explain about 25 points added to asking rents from Q4 2021 to Q4 2024. The early contribution from financing slows and turns negative when rate cuts hit in 2024, adding only 5 points when all was said and done. While the analysis doesn’t touch on this point, it’s worth noting that the low rate speculative investor surge—and abrupt rate hikes that followed—amplified the influence of financing.
On the other hand, rental supply growth reduced it by 10 points. Most of that reduction likely comes from cities like Toronto and Vancouver, where the drop was attributed to a rise in the secondary rental market—i.e. the condo bubble.
Canadian Asking Rents Driven By “Unexplained Factors” Prior To Population Surge
On the note of speculative rents, the BoC model includes “unexplained factors.” In early Q1 2020, asking rents were up 6.7% y/y, with he analysis assigning 5.4 points to factors it couldn’t explain. That’s 81% of the net increase that year—before the pandemic, before rate cuts, before lockdowns.
The BoC doesn’t address this point in the research, but it stands out as it predates the surge in renter households or financing costs. It leaves a gap in the narrative, as the model identifies major contributors to the later run-up, but it can’t account for most the early growth.
That begs the question—are these factors later drivers of growth, or was a speculative bubble forming and searching for factors to support its extension?
