The CMHC’s recent Rental Market Report paints a sobering picture of a full-blown rental crisis. Canada-wide, vacancy rates have hit record lows. Purpose-built rentals (apartments) are at a 1.5% vacancy rate, with rental condos at 0.9%. In Toronto, things are even tighter: the rate for available condos is currently an impossible 0.7% — the lowest in decades. Compare that to the 3% vacancy rate the CMHC says is healthy, and you see the severity of the issue.

Availability of rental units is actually up quite a bit year-over-year. But while there are more listings, the extreme demand is absorbing those numbers. And with that demand, rent prices are on the rise.

The cost to rent a home has vastly outpaced both inflation and wage growth. People are spending more of their incomes on housing than ever before, which means they're saving less (if anything at all), putting them out of the running for home ownership. So even if they can find a place, a lot of people simply can't shell out $2,500 or $3,500 every month.

Lack of affordability is putting many in an untenable position – and that’s when you end up getting troubling reports, such as recent coverage on 25 students living in one Brampton basement.

How have we gotten to this place? A number of factors have brought us here.

The Surging Population

In 2023 alone, an unprecedented 1.2 million immigrants and non-permanent residents came into Canada. This has been a huge contributor to the rental crisis, and it isn't something anyone accounted for in forecasts or economic models — which is, in my opinion, another major fail on the part of policy makers.

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Immigration has done two things: it has kept home prices relatively stable, so we haven't seen the drop people were expecting. And, it has really amped up the rental market; not only do most new Canadians rent, but many of those who could potentially buy are prevented from doing so by the foreign buyers ban that’s in effect until the end of 2024.

High Borrowing Costs

Peak interest rates and high property prices are keeping renters from becoming homeowners. By continuing to rent, they’re adding pressure to the market.

Developers Are Sitting On A Pile Of Unsold Inventory

Unsold new condo inventory increased 41% year-over-year in 2023, growing to over 22,000 units at the end of last year. Pre-con buyers are unloading at a loss, walking away from deposits and dumping what they can into the free-for-all assignment market. The majority of those units would have been added to the rental supply, but instead, they're sitting empty. Developers aren't looking to rent out those units, and I don't see that changing.

New Construction Has Slowed To A Crawl

With all that unsold inventory out there, developers have pretty much put down their shovels. In the second half of 2023, construction activity in the GTA fell by 72% year-over-year, with only about 4,400 starts recorded. Add in heavy bureaucracy, higher building costs, and a shortage of skilled trades to the mix, and you see why construction has basically ground to a halt.

And while the government is offering funding to help kickstart construction, not much is going to happen if developers can't hire skilled people or get past the mountains of red tape in their way.

Investors Can't Afford To Be Landlords Anymore

Real estate investors are huge contributors to the rental supply. But they aren't just unloading pre-con units – they're selling resale properties as well. And new investors aren’t entering the market in this climate. Condo listings for sale have increased dramatically, and it’s no surprise, because even when they’re able to charge market-rate rents, those paying today’s interest rates can’t cover their costs.

I talked to one client who recently rented out her investment property — a two-bedroom condo in south Mississauga. She got a building-record rent, but with a variable rate mortgage (plus maintenance fees, property taxes and insurance), the rent only covers 80% of her carrying costs… And that's actually a pretty sunny scenario.

Turnover Is Low, Low, Low

Renters know they can't move without paying more for less space. So even if their current place isn't meeting their needs, most are staying put — which is yet another variable keeping inventory off the market.

All of those factors are contributing to a market in crisis. There's a lot of work to be done to get Canadians the housing they need, and there isn't much relief in sight, at least not in the short term. I'd say it will take at least two to three years before the policies being put into place now start making a difference.

This article was produced in partnership with STOREYS Custom Studio.

Real Insights with John Lusink