Canada's Rental Market Faces Continued Decline as Supply Grows and Demand Slows

📅 2 days ago

The average asking rent in Canada has decreased for the 20th consecutive month, driven by an increase in rental supply and a drop in demand, according to recent reports from Rentals.ca and CMHC.

Last week, Rentals.ca released its latest rental market report, revealing that the average asking rent in Canada has dropped by 4.7% year-over-year in May. This decline marks the 20th consecutive month of year-over-year decreases in rental prices. The report highlighted that, after hitting a low of $1,662 in April 2021 during the COVID-19 pandemic, average rents have since risen by 22.1% but are now down 7.8% from their peak of $2,202 in May 2024. In conjunction with this, the Canada Mortgage and Housing Corporation (CMHC) published its 2026 Mid-Year Rental Market Update, providing deeper insights into emerging microtrends within the rental market.
The CMHC report emphasized a fundamental economic principle: an increase in supply coupled with a decrease in demand leads to lower prices. This trend is observable in the rental market, particularly in major urban centers such as Toronto, Vancouver, Calgary, and Ottawa, where asking rents for available units are continuing to decline. The surge in rental supply has created heightened competition among landlords, compelling them to offer various incentives to attract tenants. CMHC noted that these incentives have become more prevalent over the past six months, with offerings that can include several months of free rent, discounted parking, cash bonuses, or gift cards.
Moreover, CMHC identified a significant disparity in vacancy rates between older and newer buildings. Vacancies have been notably higher in structures constructed after 2020 and in units situated near post-secondary institutions. In contrast, older stabilized buildings and family-sized units are experiencing tighter market conditions. This phenomenon has been described by CMHC as a short-term imbalance in the market, particularly for newer, higher-priced units, which are taking longer to rent out—sometimes requiring several months.
Traditionally, a balanced rental market is characterized by rent growth, adjusted for inflation, being near zero, with a vacancy rate of around 3% serving as the industry benchmark. However, CMHC asserts that this 3% benchmark is not universally applicable across different markets. For instance, while this figure may be suitable for Vancouver, other markets might warrant a benchmark closer to 4%, and some regions in Alberta might require rates above 5%.
Another noteworthy trend is the divergence between existing tenancies and new tenancies regarding affordability. CMHC reported that asking rent-to-income ratios have decreased for new leases, while affordability has worsened for existing renters. In the first quarter of 2026, affordability for existing tenants has deteriorated in most key markets compared to the previous year, with exceptions noted in Edmonton and Toronto, where higher wage growth and slower rent increases have improved conditions. Conversely, Calgary and Halifax have seen significant declines in affordability, with their ratios approaching levels currently observed in Toronto.
As a consequence of the heightened competition among landlords and the abundance of incentives, tenants are increasingly willing to relocate for better offers. This trend suggests that newer high-end rental units are attracting higher-income renters, which in turn frees up lower-priced units. CMHC’s analysis indicates that tenant turnover is highest among the most expensive rent quartiles, with lower turnover rates observed in more affordable quartiles. Vacancy and turnover rates have risen across most rent quartiles in major markets like Toronto and Vancouver.
The growth of the renter population is another critical factor influencing the rental market. Despite ongoing fluctuations in immigration due to federal policy changes, CMHC forecasts continued growth in the renter demographic, spurred by factors such as increased affordability and young adults seeking independence. The report anticipates that household formation will persist through 2026, predominantly among younger cohorts who are more inclined to rent, particularly amid economic uncertainties and the comparatively lower costs associated with renting versus homeownership. CMHC noted that easing housing costs are expected to bolster growth in Toronto and Vancouver, facilitating the formation of previously suppressed households.

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