Despite tight rental conditions in some of Canada's largest urban markets, the national vacancy rate was 3.1% in 2021, according to a Canada Mortgage and Housing Corporation report -- thanks, in large part, to mostly flat growth in Montreal.

Canada’s second-largest city comprises about 30% of Canada’s primary rental housing -- for context, the Metropolitan Montreal has over 500,000 rental units, while both Toronto and Vancouver each have over 100,000—and its stable vacancy rate offset increases in other major cities, notably Toronto.

Read: Toronto Rental Rates Have Been Surging Again

Although rental supply increased last year, affordability remained a concern, indicating that supply gains are hardly stemming demand.

In cities with at least 10,000 residents, the purpose-built, or primary, rental stock averaged 3.1% vacancy last year, a marginal drop from 3.2% in 2020 when large swaths of the population, particularly in large urban centres, fled. In 2019, the vacancy rate was 2.2%, but CMHC says the 2021 vacancy rate hasn’t deviated much from the long-run average.

Additionally, the vacancy rate decreased in 21 of 37 surveyed key markets that include Vancouver, Victoria, Halifax and Calgary, while it remained sideways in 13 centres (including Montreal), and rose in Toronto.

Last year, two-bedroom rental rates averaged $1,167, although, at $1,824, it was highest in Vancouver, followed by Toronto at $1,679, however, Montreal had among the lowest median rate for that apartment type at $932.

The growth of the average two-bedroom rental decelerated to 3% last year, but it was still above the historical average of 2.7%. However, there were several noteworthy exceptions to the nationwide growth trend, including in Vancouver, Victoria and Montreal, which saw rates climb faster. Toronto, conversely, recorded one of the largest rental drops, which CMHC said is consistent with the city’s vacancy rate climbing as a consequence of lingering COVID-19-related effects.

In the condominium, or secondary, rental market, things were much tighter, according to CMHC data. Vancouver and Ottawa both recorded vacancy rates of 80 basis points, while Montreal recorded 1.4% and Toronto 1.7%. CMHC added that this signifies how coveted condominium rentals are, particularly in Vancouver and Toronto—in the latter’s case, it could be a result of very little purpose-built rental stock development in the preceding decades, suggesting preference for quality, up-to-date, and amenity-rich, dwellings.

Rental Affordability Is a Persistent Problem

It is instructive to note that a balanced market has a vacancy rate in the 5-6% range, and anything less, such as 3.1% in 2021, indicates affordability challenges, which is exactly what CMHC’s report concluded. It defines affordability as spending no more than 30% of gross income on monthly rent, but according to the Crown corporation’s calculations — it defines full-time employment as 150 hours a month, or 37.5 per week — in smaller CMAs like Peterborough in October 2021, it would have required a 36.7 hour year-over-year increase to 160.5 hours a month to meet the 30% threshold for a two-bedroom rental. Windsor would have required an 18.6-hour increase to 137.8 over that period to meet the threshold, though that remains comfortably below 50 hours.

In the three largest CMAs of Toronto, Montreal and Vancouver, it would have required 7.6-, 3-, and 0.3-hour year-over-year increases in October 2021 to reach 178.3, 105.8 and 198 monthly hours worked, respectively, which would have met the 30% threshold for two-bedroom rentals, meaning that Montreal is the most affordable major rental market in Canada.