Canada’s Rent Reversal: Why asking rents are falling—how low they could go, and what are the implications
August 22, 2025
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
|
The Turning Point
In the spring of 2025, a shift quietly emerged in Canada’s rental landscape. For the first time in nearly a decade, advertised rents in several of the country’s hottest markets began to fall. It was not a dramatic crash—three to five per cent declines in Toronto, Vancouver, Calgary, and Halifax—but for landlords and tenants accustomed to years of relentless increases, it was a shock. After all, rental markets in these cities had seemed impervious to economic cycles, climbing steadily through the pandemic, through interest rate hikes, and through record multi-family completions. |
The Canada Mortgage and Housing Corporation’s (CMHC) Mid-Year Rental Market Update (July 2025)[1] confirmed the shift: supply from new completions is arriving faster than demand growth, pushing vacancy rates higher and putting pressure on landlords to compete. In most large cities, average advertised rent for a two-bedroom fell between 3-9%, with the decline in condominium rents being more pronounced.
Figure 1.0
Figure 2.0
Source: CMHC
On the surface, these are modest corrections. But in a market where even small shifts can affect household budgets, financial markets, and government policy, the implications are profound. For tenants, the drops offer a sliver of relief. For landlords, they threaten the fragile math that underpinned investment decisions made during the 2020–22 boom. For policymakers, they highlight the risks of relying on an unbalanced housing system in which a flood of the “wrong kind” of supply—small units, luxury condos, investor-owned stock—arrives all at once.
A Supply Wave Unlike Any in Recent Memory
The seeds of this shift were planted years earlier. Between 2021 and 2024, Ottawa leaned hard on supply: CMHC’s Apartment Construction Loan Program and its MLI Select insurance made financing cheaper and de-risked, pulling thousands of rental projects off the drawing board. At the same time, surging immigration reassured lenders and developers that demand would be there when buildings opened.
Fast forward to mid-2025: cranes crowd the skylines of Toronto, Vancouver, and Calgary. Nationally, housing starts rose 3.6% in June 2025, reaching a seasonally adjusted annualized rate of over 253,000 units. In Canada’s largest census metropolitan areas (CMAs), actual starts climbed 14% year-over-year to more than 23,000 units in June alone.
That momentum is now colliding with weaker demand, albeit not as fast as the demand. Counting both recent starts and units already under construction, the market is staring at deliveries measured in the hundreds of thousands over the next 24–36 months, roughly 700,000 apartments if current projects proceed on schedule.
A Supply Wave Unlike Any in Recent Memory
The seeds of this shift were planted years earlier. Between 2021 and 2024, Ottawa leaned hard on supply: CMHC’s Apartment Construction Loan Program and its MLI Select insurance made financing cheaper and de-risked, pulling thousands of rental projects off the drawing board. At the same time, surging immigration reassured lenders and developers that demand would be there when buildings opened.
Fast forward to mid-2025: cranes crowd the skylines of Toronto, Vancouver, and Calgary. Nationally, housing starts rose 3.6% in June 2025, reaching a seasonally adjusted annualized rate of over 253,000 units. In Canada’s largest census metropolitan areas (CMAs), actual starts climbed 14% year-over-year to more than 23,000 units in June alone.
That momentum is now colliding with weaker demand, albeit not as fast as the demand. Counting both recent starts and units already under construction, the market is staring at deliveries measured in the hundreds of thousands over the next 24–36 months, roughly 700,000 apartments if current projects proceed on schedule.
Figure 3.0
Source: CMHC
The Piece Most Don’t Dwell On: The Condo Spillover
The “missing” story is the magnitude and timing of condo supply that’s not selling—and is therefore either being leased or outright converted to purpose-built rental. In the Greater Toronto–Hamilton Area (GTHA), Urbanation[2] reports record-high completed but unsold inventory (2,478 developer held units as of Q2 2025, up 102% year-over-year), a ~60-month supply overhang on standing product, and 31,422 scheduled condo completions in 2025 (declining to ~18,037 in 2026). Nine projects cancelled since 2024 have already pivoted into rental.
Vancouver, though smaller in scale, is facing similar pressures. Presale absorption has slowed, and some downtown developers are delaying launches indefinitely. Halifax and Ottawa are also seeing investors hesitate on pre-construction commitments.
The result is that thousands of units that were expected to sell into the ownership market are now leaking into the rental pool, adding to the flood of new supply arriving from purpose-built completions.
The spillover is already showing up in behavior: in Q2 2025, two-thirds of GTHA rental buildings offered incentives (one to two months free in many cases). When you adjust for those incentives, net-effective rents were 12.4% below face rents[3]. This is classic spillover: when pre-sold buyers hesitate to close and investors balk at selling into a weak bid, units hit the rental pool directly.
The “missing” story is the magnitude and timing of condo supply that’s not selling—and is therefore either being leased or outright converted to purpose-built rental. In the Greater Toronto–Hamilton Area (GTHA), Urbanation[2] reports record-high completed but unsold inventory (2,478 developer held units as of Q2 2025, up 102% year-over-year), a ~60-month supply overhang on standing product, and 31,422 scheduled condo completions in 2025 (declining to ~18,037 in 2026). Nine projects cancelled since 2024 have already pivoted into rental.
Vancouver, though smaller in scale, is facing similar pressures. Presale absorption has slowed, and some downtown developers are delaying launches indefinitely. Halifax and Ottawa are also seeing investors hesitate on pre-construction commitments.
The result is that thousands of units that were expected to sell into the ownership market are now leaking into the rental pool, adding to the flood of new supply arriving from purpose-built completions.
The spillover is already showing up in behavior: in Q2 2025, two-thirds of GTHA rental buildings offered incentives (one to two months free in many cases). When you adjust for those incentives, net-effective rents were 12.4% below face rents[3]. This is classic spillover: when pre-sold buyers hesitate to close and investors balk at selling into a weak bid, units hit the rental pool directly.
Figure 4.0
Source: Urbanation
Demand is Cooling by Design
International migration, once the primary driver of rental absorption, has slowed after Ottawa capped international student permits in early 2024. Youth employment has softened, reducing household formation among graduates. Inflation, while moderating, continues to squeeze disposable incomes. The first quarter of 2025 (+0.0%) marked the sixth consecutive quarter of slower population growth following announcements by the federal government in 2024 that it would lower the levels of both temporary and permanent immigration. This was the second slowest quarterly growth rate in Canada since comparable records began (first quarter of 1946), behind only the third quarter of 2020.
International migration, once the primary driver of rental absorption, has slowed after Ottawa capped international student permits in early 2024. Youth employment has softened, reducing household formation among graduates. Inflation, while moderating, continues to squeeze disposable incomes. The first quarter of 2025 (+0.0%) marked the sixth consecutive quarter of slower population growth following announcements by the federal government in 2024 that it would lower the levels of both temporary and permanent immigration. This was the second slowest quarterly growth rate in Canada since comparable records began (first quarter of 1946), behind only the third quarter of 2020.
Figure 5.0
The result is a rare convergence: supply accelerating just as demand is cooling.
How Low Could Rents Go?
A flood of completions, condo spillover, and a step down in non-permanent residents are converging; the math suggests a meaningful dip in asking rents. In our sample period, rent levels and the non-permanent resident (NPR) population move with an 86% correlation. On a simple extrapolation, that relationship implies a further 10–15% decline in asking rents from current levels—even before layering in the added supply from completions, condo-to-rental spillover, and increasingly aggressive incentives. (Correlation isn’t causation, but the direction and magnitude are hard to ignore.)
How Low Could Rents Go?
A flood of completions, condo spillover, and a step down in non-permanent residents are converging; the math suggests a meaningful dip in asking rents. In our sample period, rent levels and the non-permanent resident (NPR) population move with an 86% correlation. On a simple extrapolation, that relationship implies a further 10–15% decline in asking rents from current levels—even before layering in the added supply from completions, condo-to-rental spillover, and increasingly aggressive incentives. (Correlation isn’t causation, but the direction and magnitude are hard to ignore.)
Figure 6.0
Source: Statistics Canada. Table 17-10-0009-01 Population estimates, quarterly, average asking rent, PBO estimates, REIC analysis
What are the implications
For renters, it’s time to shop
Many renters would recon “But rents I’m paying are still up”. This is true because most leases reset only at renewal. Meanwhile, advertised rents and net-effective rents (after incentives) are already softer. Shopping around at renewal and asking your current landlord to match the best net-effective offer can translate into real savings.
Why the picture looks contradictory
Real estate prices are likely to fall further, prolonging the bottom and reinforcing a rental-market feedback loop
Falling rents don’t stay confined to the rental market. For investors under stress, selling becomes the only option. But resale markets are already weak. According to CMHC, condo resale prices in Toronto are down 13% from their 2022 peaks. If stressed landlords sell into soft conditions, prices could fall further, eroding equity for all owners and feeding back into the rental market as more unsold inventory is diverted into leasing.
Developers, watching absorption falter, are responding by cancelling or shelving projects. Urbanation reports that the GTA’s pre-construction pipeline has shrunk by one-third in a single year—the steepest decline in decades[4].
Negative Cash Flow Becomes the Norm
In Toronto and Vancouver, the carrying costs of many investor-owned condos already exceed achievable rents[5]. Mortgage payments on a two-bedroom unit purchased at peak 2021 prices can run upwards of $3,900 per month at current interest rates, while advertised rents for similar units hover around $2,700. Even before factoring maintenance fees and property taxes, the math is negative.
Add in the softening of advertised rents and the prevalence of incentives, and the gap widens further. A unit advertised at $2,700 but leased with a free month is actually bringing in just $2,475 on an annualized basis. That leaves a $1,425 monthly shortfall before expenses—a loss of more than $17,000 per year.
Renewals and the OSFI Time Bomb
The timing could not be worse. According to the Office of the Superintendent of Financial Institutions (OSFI), 76% of Canadian mortgages will renew by the end of 2026[6]. Many investors who locked into ultra-low rates in 2020 are now facing payment shocks of 30–50%. For those already in negative cash flow, renewal at higher rates is unsustainable.
The Bank of Canada’s 2025 Financial System Review explicitly flagged this risk: under adverse scenarios, mortgage arrears could rise to levels last seen during the global financial crisis[7]. While arrears remain historically low for now, the concentration of risk among condo investors raises the specter of localized waves of defaults.
Urgent Monetary Policy Action Needed
Another irony is statistical. Canada’s Consumer Price Index measures shelter costs based on occupied rents, not advertised rents. Since occupied rents continue to rise—up 17% in Halifax and 11% in Toronto in Q1 2025[8] —inflation remains sticky even as advertised rents fall. StatCan’s July 2025 release[9] shows rent inflation still elevated nationally, a reminder that asking-rent deflation and CPI rent inflation can (and often do) coexist in the short run. For the Bank of Canada, this means falling asking rents won’t show up in CPI for months or even years, complicating monetary policy decisions and delaying the much-needed interest rate cuts the economy needs.
For renters, it’s time to shop
Many renters would recon “But rents I’m paying are still up”. This is true because most leases reset only at renewal. Meanwhile, advertised rents and net-effective rents (after incentives) are already softer. Shopping around at renewal and asking your current landlord to match the best net-effective offer can translate into real savings.
Why the picture looks contradictory
- “Asking” vs. “effective” vs. “paid” rent. The number on a website is often a face rent. The number on a lease after two months free is a net-effective rent (12.4% below face, on average, in Q2 GTHA). The number in CPI is what incumbent tenants actually pay. In a turning market one can, and will, see all three move differently for a time.
- Vacancy changes aren’t linear. In tight markets, the first percentage point of vacancy often has the largest price impact; moving from 0.9% to 1.9% can hit advertised rents more than from 3% to 4%.
Real estate prices are likely to fall further, prolonging the bottom and reinforcing a rental-market feedback loop
Falling rents don’t stay confined to the rental market. For investors under stress, selling becomes the only option. But resale markets are already weak. According to CMHC, condo resale prices in Toronto are down 13% from their 2022 peaks. If stressed landlords sell into soft conditions, prices could fall further, eroding equity for all owners and feeding back into the rental market as more unsold inventory is diverted into leasing.
Developers, watching absorption falter, are responding by cancelling or shelving projects. Urbanation reports that the GTA’s pre-construction pipeline has shrunk by one-third in a single year—the steepest decline in decades[4].
Negative Cash Flow Becomes the Norm
In Toronto and Vancouver, the carrying costs of many investor-owned condos already exceed achievable rents[5]. Mortgage payments on a two-bedroom unit purchased at peak 2021 prices can run upwards of $3,900 per month at current interest rates, while advertised rents for similar units hover around $2,700. Even before factoring maintenance fees and property taxes, the math is negative.
Add in the softening of advertised rents and the prevalence of incentives, and the gap widens further. A unit advertised at $2,700 but leased with a free month is actually bringing in just $2,475 on an annualized basis. That leaves a $1,425 monthly shortfall before expenses—a loss of more than $17,000 per year.
Renewals and the OSFI Time Bomb
The timing could not be worse. According to the Office of the Superintendent of Financial Institutions (OSFI), 76% of Canadian mortgages will renew by the end of 2026[6]. Many investors who locked into ultra-low rates in 2020 are now facing payment shocks of 30–50%. For those already in negative cash flow, renewal at higher rates is unsustainable.
The Bank of Canada’s 2025 Financial System Review explicitly flagged this risk: under adverse scenarios, mortgage arrears could rise to levels last seen during the global financial crisis[7]. While arrears remain historically low for now, the concentration of risk among condo investors raises the specter of localized waves of defaults.
Urgent Monetary Policy Action Needed
Another irony is statistical. Canada’s Consumer Price Index measures shelter costs based on occupied rents, not advertised rents. Since occupied rents continue to rise—up 17% in Halifax and 11% in Toronto in Q1 2025[8] —inflation remains sticky even as advertised rents fall. StatCan’s July 2025 release[9] shows rent inflation still elevated nationally, a reminder that asking-rent deflation and CPI rent inflation can (and often do) coexist in the short run. For the Bank of Canada, this means falling asking rents won’t show up in CPI for months or even years, complicating monetary policy decisions and delaying the much-needed interest rate cuts the economy needs.
Figure 7.0
Source: CMHC
What would flip the script?
Backed by evidence-based education, respected professional designations, and a national peer network, REIC helps members turn market noise into strategy. Members gain timely briefings, practical toolkits, and hands-on workshops in leasing, incentive design, underwriting, and risk management. Whether they’re owners, property managers, brokers, or lenders, REIC equips professionals with the skills and credentials to protect cash flow now and position portfolios for the rebound ahead.
- A sharper collapse in the pipeline (supply-side break): If presale failures cascade into more cancellations, lenders retrench, or construction costs spike again, 2026–27 completions could undershoot materially. A thinner delivery slate would pull the rent trough forward and set up a faster rebound.
- Policy that re-accelerates demand (NPR/immigration): A looser student permit cap, quicker visa processing, or higher provincial allocations would lift household formation. Even a single academic intake can tighten vacancy a semester earlier in university-heavy metros.
- Earlier/steeper rate cuts (financing relief): Bank of Canada easing that meaningfully lowers carrying costs would:
- keep more investor units in ownership (not leased), trimming rental supply;
- revive presales, sustaining future completions but also reducing near-term spillover into rental;
- improve tenant mobility and formation (some roommates split into multiple leases), adding demand.
- Short-term rental (STR) policy shifts: If cities loosen STR rules or enforcement wanes, part of today’s long-term rental stock could move back to STRs—reducing supply to the long-term market and firming rents. Conversely, tighter STR rules would extend the soft patch.
- Labour market and income surprises: Stronger-than-expected job growth—especially in graduate and newcomer segments—would boost absorption. Wage gains outpacing inflation lift rent budgets; both accelerate the return of bidding pressure.
Backed by evidence-based education, respected professional designations, and a national peer network, REIC helps members turn market noise into strategy. Members gain timely briefings, practical toolkits, and hands-on workshops in leasing, incentive design, underwriting, and risk management. Whether they’re owners, property managers, brokers, or lenders, REIC equips professionals with the skills and credentials to protect cash flow now and position portfolios for the rebound ahead.
[1] CMHC Mid-Year Rental Market Update (July 2025)
[2] Urbanation
[3] Urbanation
[4] Urbanation
[5] CMHC Mid-year Rental Market Update (July 2025)
[6] OFSI
[7] BOC Financial Stability report
[8] CMHC Mid-Year Rental Market Update (July 2025)
[9] Statcan
[2] Urbanation
[3] Urbanation
[4] Urbanation
[5] CMHC Mid-year Rental Market Update (July 2025)
[6] OFSI
[7] BOC Financial Stability report
[8] CMHC Mid-Year Rental Market Update (July 2025)
[9] Statcan
Allwyn Dsouza is REIC’s Senior Analyst, Market Research and Insights. He can be reached at [email protected]. Media enquiries can be directed to [email protected].