Canada’s short on homes and renters will suffer most

Canadians who aren’t already on the property ladder are in for a tough couple of years according to recent rental data from the Canadian Mortgage and Housing Company. 

At the end of April, the CMHC released its housing outlook report and the group noted that market conditions will lead to a very painful housing scenario for most Canadians. 

According to the report, there will be a significant drop in the construction of new houses in 2023 and CMHC doesn’t expect the situation to recover until later in the year or in 2024 and onwards. 

The crunch in new builds will have downstream effects that will impact affordability, which in turn will affect rental affordability as the demand for housing starts to outstrip its supply. 

CMHC’s Chief Economist Bob Dugan explained the situation and said that even though housing prices have dropped, they’re still too elevated to make a big dent in affordability. 

“While prices have declined, homeownership will be less affordable because of higher mortgage rates and still-elevated price levels,” Dugan explained. 

“Rental affordability will also likely decline as demand outpaces rental supply,” Dugan added before going on to explain the overall condition the housing market would face.  

Dugan noted that the constraint in supply in Canada’s most expensive markets would push prices up in places like Toronto and Vancouver while increased immigration would add demand in 2024 and 2025 that would add to the affordability issues. 

The issue with the scenario explained by Dugan is that more competition for housing will lead to increased prices, which will then result in more people seeking rental units over a home purchase, creating an evergrowing cycle that will further increase rents. 

“The challenge of affordability in homeownership will drive up demand for rental units,” the CMHC report noted, adding that the increase in immigration will also place pressure on Canada’s rental market as the demand for rentals is propped up by new arrivals. 

“Greater rental demand in the face of limited supply will lead to tighter conditions in already strained markets and lead to even higher rents,” the report added, which is a situation few Canadians are prepared to deal with rental prices already at their highest. 

According to the May Rent Report from rentals.ca, the average cost of rent in Canada has risen 20% since the end of the pandemic to $2239 for a two-bedroom apartment and $1811 for a one-bedroom apartment with an average overall of all stock at $2002. 

The province of Ontario saw one of the largest year-over-year increases at 29% while British Columbia also saw a major double-digit increase at 28%—a fact that would make sense since the provinces are home to Toronto and Vancouver respectively. 

“Virtually every area in Canada is experiencing an increase,” Urbanation president Shaun Hildebrand said in an interview with The Globe and Mail on May 16th. 

“Fundamentally, this comes down to the housing supply but also the shock in interest rates and high housing costs that impact generational affordability,” Hildebrand added, something CMHC's report certainly also noted. 

The main takeaway from all this doom and gloom is that despite the cooling market conditions, tightened supply is making Canada’s housing market poised for a rebound—and that’s going to be bad news for everyone. But it's those who rent that will suffer the most.