Canada’s rental market, which has seen an explosive rise in prices over the last few years, may experience a slowdown in rent inflation in the coming years, according to a recent report from Desjardins. This prediction is based on several factors, including the Canadian government’s decision to reduce immigration targets, an anticipated rise in unemployment, and a potential slowdown in population growth. While the report signals hope for renters, it also highlights a complex mix of economic variables that could either ease or sustain upward pressure on rental prices.
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A Turning Point for Rent Inflation?
For much of 2023, Canadian renters have felt the sting of rapidly rising rental prices. Rent inflation surged to 8.3% in the third quarter of 2023—the fastest pace since the early 1980s. This surge has been driven in large part by a combination of high demand, low housing supply, and demographic shifts that have seen more people opting to rent rather than own homes. In its latest outlook, Desjardins forecasts that this pace will decelerate in the next few years, with inflationary pressure on rents likely to ease.
The cooling of rent inflation is linked to several key factors, the most significant being the federal government’s plans to cut immigration by 20% over the next few years. Immigration has been a major driver of rental demand in Canada, as new arrivals—especially temporary foreign workers, international students, and newcomers seeking permanent residency—tend to rent rather than buy, given the transient nature of their stays.
The Desjardins report notes that reducing immigration could “halt or possibly even reverse” Canada’s population growth, which would reduce demand for rental housing and, consequently, ease pressure on rental prices.
Factors Influencing Rent Inflation
The relationship between population growth and rental demand is central to Desjardins’ prediction. Canada’s population growth has been one of the fastest in the developed world, partly fueled by immigration. Newcomers typically rent, as they are not yet ready to buy homes, and often prefer the flexibility renting offers.
However, the government’s decision to scale back immigration could lead to a slower-growing or even shrinking population, resulting in less demand for rental accommodation. Coupled with an expected increase in unemployment, which would temper economic activity and dampen housing demand, the report suggests that rental inflation will likely decelerate.
That said, there is still some uncertainty surrounding the full impact of these policy changes. If population growth slows more rapidly than expected, rental demand will likely ease significantly. Conversely, if immigration levels or population growth do not decrease as much as anticipated, rent inflation could persist at higher levels than predicted.
Regional Variations in Rent Inflation
Desjardins’ analysis also highlights how the slowdown in rent inflation will not be uniform across Canada. Rent inflation in major cities like Toronto and Vancouver is expected to moderate, but it will still be relatively high compared to other parts of the country. The most significant relief is anticipated in Alberta and Saskatchewan, where the rental market is highly cyclical and sensitive to changes in economic conditions. With these provinces experiencing slower population growth and less pressure on their rental markets, rents are expected to slow the fastest.
In contrast, Quebec, particularly in Montreal, is expected to see continued price pressures due to strong demand in its rental markets, despite the broader slowdown across the country. Ontario, with its dense population and continued demand for rental properties, will also see a slower deceleration in rent inflation compared to other provinces.
In cities like Calgary and Edmonton, rent inflation is expected to ease more quickly, largely due to the nature of Alberta’s cyclical economy and rental market. These markets often experience rapid shifts based on changes in the oil and gas sector, and as a result, tend to see more pronounced rental fluctuations.
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Temporary Relief or Long-Term Solutions?
While Desjardins’ report paints a cautiously optimistic picture of slower rent inflation, it also warns that any relief may be temporary without long-term structural solutions. The increasing number of households renting, coupled with limited housing supply, means that rising rents will continue to affect a growing share of Canadians. Even if immigration-related pressures ease, the underlying issues of affordability and housing availability need to be addressed.
The report underscores the importance of substantial increases in housing supply across both rental and ownership sectors to meaningfully address the affordability crisis. Without significant policy action and development in housing infrastructure, the challenges of rent inflation could continue to haunt renters across Canada for years to come.
Key Takeaways:
- Rent inflation is expected to slow in Canada due to a reduction in immigration, rising unemployment, and lower population growth.
- Rising rents have affected a growing share of Canadians, with the rental market seeing the highest inflation since the early 1980s.
- The immigration cutback and a rise in unemployment are seen as key factors in reducing demand for rental properties.
- Regional differences will influence the pace of rent inflation slowdown, with Alberta and Saskatchewan likely to see the most rapid easing, while markets in Ontario and Quebec may continue to face high rent inflation.
- Long-term solutions, including increased housing supply, are essential to addressing affordability challenges in both the rental and homeownership sectors.
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For renters in Canada, while the outlook for rent inflation is more promising than it has been in recent years, the broader housing crisis is far from over. The government’s immigration policies and regional economic conditions will play pivotal roles in shaping the rental landscape over the next few years. However, only a significant increase in housing supply and sustained policy efforts will bring lasting relief to Canada’s rental market.
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