The Cooling Trend of Rents in Canada: An In-Depth Analysis
Over the past year, Canada’s rental market has witnessed a significant cooling effect, marking a departure from the rapidly escalating rents of previous years. This article delves into the factors influencing this trend, projections for the future, and the implications for renters and landlords alike.
A Shift in Dynamics
As of 2025, multiple factors have contributed to the cooling of rents in Canada. Slowing population growth, improved ownership conditions, and an increase in inventory have begun shifting the supply-demand balance. Analysts predict that the rental vacancy rate could rise above 3% this year—a crucial benchmark indicating a more balanced market. This would mark the third consecutive year of rising vacancy rates and be the first time in a decade that the rate would exceed 3% for two-bedroom apartments.
The Implications of Rising Vacancy Rates
As vacancy rates climb, landlords face increased challenges in filling their rental units. A higher vacancy rate typically translates to softer rents as landlords become more competitive to attract tenants. For instance, asking rents dropped across Canada in 2025, and further declines are anticipated in 2026. Despite this, market dynamics suggest that average rents paid by tenants might not experience a corresponding drop.
Understanding Rent Metrics
It’s essential to differentiate between asking rents and average rents when analyzing the rental market. Asking rents reflect the prices advertised by landlords for available units, making them more volatile and responsive to market conditions. In contrast, average rents provide a broader perspective by illustrating what tenants are actually paying across all units. This fluctuation can be dampened by government regulations and landlord strategies aimed at retaining tenants.
While asking rents fell nationally by 3.2% from 2024 to 2025, average rents for two-bedroom apartments still experienced a growth of 5.1%. This paradox illustrates the complexities of the rental market, where improvements in asking rents do not necessarily translate to relief for existing tenants.
The Rent Paradox
Despite the decline in asking rents, average rents for in-place tenants have continued to rise. Landlords still raised rents on existing tenants, contributing significantly to the overall rise in average rents. However, the recent softening in asking rents has empowered in-place tenants, giving them leverage during lease renewals. As vacancies increase, landlords may opt for more accommodating terms to retain tenants, resulting in a narrowing gap between rent increases for existing tenants and new leases.
The Future of Rent Increases
Looking ahead, average rent increases are expected to moderate further, with projections estimating a rise of 3.6% across Canada in 2026. Factors such as weaker temporary resident inflows and improved conditions for ownership are anticipated to restrict rental demand. However, unless vacancy rates significantly exceed 3%, an outright decline in average rents remains unlikely.
Variability in Unit Types
Interestingly, the rental market has not uniformly softened; larger units have experienced less decline compared to smaller units. Individuals and families are increasingly competing for a limited supply of larger rentals, maintaining tighter market conditions for these units. This discrepancy underscores the diverse dynamics at play within the rental market, which often sees limited construction of larger housing options.
The Impact of Slowing Immigration
Canada’s immigration policy has also significantly influenced the rental market dynamics. A marked decrease in temporary resident inflows, particularly in 2025, has impacted rental demand. Many temporary residents, such as international students, predominantly rent rather than purchase, making this demographic a critical source of rental demand. The anticipated decline in net new non-permanent residents is expected to further pressure rental markets in significant urban centers like Ontario and British Columbia.
Population Trends and Outflows
The slowdown in population growth is not uniform across the nation. Major cities such as Toronto and Vancouver are notably experiencing stagnation, with both cities witnessing outflows of residents to smaller, more affordable locales. High rental costs have precipitated this trend, putting additional strain on rental demand in these historically high-rent markets.
While some areas like Calgary and Edmonton benefit from interprovincial migration, markets across the Greater Toronto and Greater Vancouver Areas face challenges to rental demand. Population stagnation in these cities poses risks to the overall rental market dynamics.
Infrastructure and Construction
Despite current challenges, the rental construction pipeline remains robust, with recent advancements countering the pressures seen in the ownership market. Government initiatives promoting rental development play a crucial role in this continued construction momentum. However, sustaining this pace beyond 2026 might be challenging unless rent levels remain high enough to incentivize new projects.
Understanding Market Dynamics
A comprehensive view of the rental market requires examining both the primary and secondary rental markets. The primary market includes purpose-built rental properties, while the secondary market consists of investor-owned units. Current vacancy rates in the primary market indicate a relatively tighter supply-demand landscape compared to the secondary market.
Conclusion: A Necessary Adjustment
In sum, Canada’s rental market is undergoing a much-needed correction after a period of unsustainable growth. Although current factors may lead to temporary increases in vacancies, the long-term trajectory points towards a stabilization of rents. As the population growth is projected to reaccelerate by 2028 due to a recalibrated immigration policy, we anticipate a renewed demand for rental housing across the country.
For both landlords and tenants, these shifting dynamics suggest a period of adjustment requiring strategic planning and flexibility to navigate the evolving Canadian rental landscape.
About the author:
Rachel Battaglia
Economist at RBC
Providing forecasts for Canadian provincial economies and analyzing key trends in housing and consumer spending.
