Looking back at 2023, the Canadian rental market experienced remarkable changes, defying expectations and historical norms. Using data from the Rentals.ca National Rent Report, we provide a nuanced perspective on the seismic shifts and challenges faced by the Canadian housing market.
2023 witnessed explosive growth that surpassed expectations, leading to unprecedented demand. This surge even spilled into markets traditionally known for greater affordability. Peaking in August we saw record year-over-year rent growth in markets that are typically considered more affordable. For example, Calgary saw +17.3%, while Montreal saw +16.4% annualized growth in market rents. This rapid growth only lasted for a quarter before it began to cool once more with these markets ending the year at a more moderate +10.4% for Calgary and +8.5% for Montreal. The primary driver behind the gangbuster year in these cities amongst many others was an unprecedented growth in rental demand.
Much of the country saw strong ongoing net immigration, maintained student demand, and lastly a growing number of households pushed out of the increasingly unaffordable home ownership market. Calgary specifically saw the additional pressure of inter-provincial migration which saw just over 17,000 people move to Alberta as a whole between July and September 2023, with a majority holding Calgary as their final destination.
A shifting population wasn't the only factor impacting rental demand. With changes in broader economic conditions bringing more households into the rental market.
Whether retaliatory or reactionary the Bank of Canada used interest rates as a weapon when fighting growing inflation. While the repercussions were many, the ultimate result was that even though home prices were coming down in many markets, affordability shrunk alongside them. Some were forced to rent for longer, some were pushed out of an increasingly unaffordable home, while some others were unable to purchase a home in the first place. The end result is more households pushed into renting and those who would otherwise have a strong enough income to buy, are now renting. The end result is more renters and a growing average income amongst renters across the country.
New construction saw applications and starts grow through the first part of the year, before contracting and in the second half of the year new housing starts saw declines across the country. Worsening the dynamics between supply and demand, the dip in new construction pushes us further away from the 3.5 million additional new homes CMHC has projected will need to be built by 2030.
Not all bad news as there are many ongoing projects which will hit the market in 2024 ensuring that the supply of new units continues to grow. The later parts of the year will however see a decline as projects are complete and reduced construction starts become more visible. This may very well lead to a renewed supply crunch with limited new units coming to market; the combination of limited supply and renewed seasonal demand will push the market further causing rents to reaccelerate and erode affordability.
As we begin 2024, the Canadian rental market stands at a crossroads, balancing unprecedented demand with challenges of supply, affordability, and sustainability. Governments at all levels have woken up to the issues affecting their communities, and have started pushing for meaningful change. At the trajectory we are currently traveling at, we see many challenges in the new year however, we also see opportunities. Opportunities for growth, for meaningful change, and for a better outlook for Canadian renters.