National vacancy dropped to a “near-historic low” in 2022, as rental demand surged, all but eclipsing available supply. At a local level, rental demand was just as hard-pressed, with vacancies in Toronto backtracking to pre-pandemic levels.

This is according to a new Rental Market Report from Canada Mortgage and Housing Corporation (CMHC), based on data from CMHC’s Rental Market Survey and Condominium Apartment Survey. Released annually, CMHC’s report offers in-depth insights into Canada’s primary and select secondary rental markets with respect to the year prior.

The report puts the national vacancy rate for purpose-built rentals at 1.9% -- its lowest level since 2001 -- down from 3.1% in 2021. This was despite a sharp increase in purpose-built rental supply observed between October 2021 and October 2022.

The story was similar in the national condominium segment, which saw vacancy fall to 1.6%.

CMHC attributes such demand-supply tensions to higher net migration, the return of students to in-person learning, and mortgage rates, which put homeownership out of many Canadians' grasps. In addition, the organization notes that affordable rental units were sorely lacking in the market. In some cases, these types of accommodations were “too low to report,” and this reality was most apparent in Ontario and BC.

Plunging Vacancy in Toronto: A Magnifying Glass on Short Supply

Many of the pressures that drove rental conditions on a national scale had a compounding effect on Toronto’s market, with purpose-built rental vacancy dropping to 1.7%, down from 4.4% in 2021. Last year’s rate was in line with the 10-year pre-pandemic average of 1.5%, says CMHC, pointing to a return to normalcy following the anomalous conditions of 2020 and 2021.

“When vacancy rates actually went up in the GTA, we always knew it was a temporary situation, almost a reaction to the pandemic restrictions,” Dana Senagama, CMHC's Principal Market Analyst for the Greater Toronto Area and Ontario, tells STOREYS. “It was just a matter of time as things settled.”

And conditions have indeed rebounded to pre-pandemic norms, in more ways than one.

In 2022, Toronto saw a “near-complete recovery” in full-time employment among youth, aged 15–24. The same was true of those aged 25 to 44 -- “and this is a group that typically accounts for half of the rental households in the Toronto CMA,” continues Senagama. “A lot of the people in the hospitality industry that were out of jobs during the pandemic due to the lockdowns and another economic slowdown, we've seen them returning and that has supported the rental market.”

CMHC’s report also draws attention to the number of apartments added to the primary rental stock in 2022 -- it grew by 2.1% compared to the year prior -- calling it the “highest in recent decades.”

“It’s been an encouraging trend in the GTA in the last 10 years that we've seen more and more purpose-built rental completions coming on board,” says Senagama. “The mere fact that we've had very low vacancy rates for the last decade or more has encouraged more developers to get into rental and basically build more rental stock.”

Even so, the new supply, as meaningful as it was, did little to offset the demand, particularly for low- and middle-income earners in need of affordable rental accommodations. Such units had the lowest vacancy rates in the GTA.

Moreover, purpose-built rental completions paled in comparison to condo completions. “For every six condos that we're building, we're only building one purpose-built rental,” says Senagama.

Still, she notes that the role condos play in the rental market is an important one. Though they may not cater to lower-income households, they became a popular choice for would-be homeowners waiting out the uncertain housing market and high cost of borrowing. As such, condominium rental vacancies dropped down to 1.1% in 2022. Indicative of the strong demand and short supply, rents for this housing type escalated to $2,671.

With rentals being in such short supply, more importance was put on the secondary rental market in 2022, with the share of condominium apartments held by long-term investors growing to 36.2%, up from 34.7% in the year prior.

“Essentially, these are units that are being leased,” says Senagama, pointing to restrictions on short-term rentals as one of the reasons investors turned to leasing their properties on a long-term basis. “And also, because vacancy rates are so low in the condo market, there's very strong demand and rents are very high in the condominium apartment market. And that also encouraged more investors to get into leasing their units.”

New to this year’s report was data on rent growth based on turnover. While the average rent growth for a two-bedroom apartment was 6.5%, the rent growth for the same apartment type after turnover was 29%.

To restore affordability to not only Toronto's market, but on a national scale, the solution is "easier said than done," says Senagama. More supply is obviously and desperately needed, as are inventive solutions to accessing it.

“Most important is being able to equip the market with affordable rental," she goes on to say. "There is a real recognition with CMHC, but also the broader industry, that lack of supply is the key impediment for creating affordable rental stock. So there's a real push for it from a federal level, but I think also at the other government levels. At CMHC, we have several programs in place that encourage rental housing, and that should hopefully promote more units into the market in the forthcoming years.”