“TBC: In the long term, these units will continue, yes, to grow in terms of their rents, but it will be at a much slower rate. So eventually, in the long term, these units may become more affordable, and maybe a more immediate effect of that is that, well, all of those new units, a big, big chunk of those are actually occupied, which means that there were other units that were freed up, and so maybe some less expensive units.”
[INTRODUCTION]
[0:00:33] ANNOUNCER: Welcome to another episode of Sync or Swim, brought to you by Rentsync. From operational challenges to marketing mastery, we uncover the strategies and technologies in all things PropTech. So let's dive in as we explore the trends, tactics, and insights that define the future of multifamily investments. Sync or Swim starts now.
[INTERVIEW]
[0:00:55] GL: Hey, everybody. My name is Giacomo Ladas, and today I'm excited to be joined by Tania Bourassa-Ochoa, CMHC's Deputy Chief Economist. If you're in the rental housing space at all, I'm sure you already know about the CMHC's Rental Market Reports. They really are the gold standard trusted by industry professionals and rentals that stay frankly for over two decades now.
Today, we're going to dive into some key sites from the latest fall rental market report, and pick Tania's brain about what's in store for 2025. Tania, thanks for joining me today. I know you're probably quite busy, so we really appreciate this.
[0:01:25] TBO: Well, thank you for having me on the podcast.
[0:01:28] GL: You got it. For anyone listening who may be unfamiliar with CMHC, can you maybe briefly explain what your organization is and who the rental market reports are for?
[0:01:38] TBO: Yes, sure. CMHC, the Canadian Mortgage and Housing Corporation, so we're a federal crown, and we do lots of things. We do provide mortgage insurance for homebuyers but also for builders or investors in the multi-unit space. We are also involved in securitization, which is basically mortgage funding. But we also have this big branch that is focused on research, on market insights, on data. Our goal is really to provide as much information as possible to help all of the stakeholders out there to make important decisions.
[0:02:17] GL: How often do these rental market reports get published?
[0:02:20] TBO: Yes. The rental markets report, so the data is collected annually, and so we release the report every year. In this report, you'll find really relevant information around the vacancy rate, around rents, a whole bunch of other indicators that we've added along the time. These reports are basically for either investors or policymakers or even every Canadian that is interested in learning about the rental market.
[0:02:49] GL: Yes. For those listening who haven't actually got their hands on it yet or saw them, they're quite in-depth. But they also give really great highlights that if you just want a clear overview of the country or break it down by major cities, they're great for that. I think let's dive into it. The notable thing that we talked a lot about at Rentals.ca is the supply and demand dynamics and how they've been in flux for a while now. Now, the latest report mentioned that this is actually the highest level of supply growth in about 30 years. What factors are driving this trend, and how sustainable do you think this is?
[0:03:20] TBO: Yes. Indeed it's record level of supply that was added to the market over the last year. All of those units were completed and were made available for tenants, and so a lot of factors. But really the main, main driver here is a real concerted effort of all the levels of government; federal, provincial, municipal. What that looks like is different types of government programs, funding, a whole bunch of stuff that has really intended to help add more supply to the market, and also help make it easier for builders to build more and add more to the market in the end.
[0:03:58] GL: Yes. I think we share that same sentiment of that's how we get out of this housing crisis is more supply, right? I know CMHC does a great job of giving estimates about how much more supply we need to restore affordability, and that's in the millions. It’s definitely this thing that we want to hammer home a bit is that supply is the way to actually restore the affordability of the housing crisis right now.
We did notice actually that Montreal seemed to far exceed the rest of Canada's major cities and purpose-built apartment completions. Did you see anything unique about Montreal that explains why it seemed like such an outlier? It seemed kind of strange just how far ahead it was.
[0:04:32] TBO: Yes. Well, so Montreal did definitely lead the way. They added 12,000-plus units to the rental market in the last year, which was actually a little bit lower than what we had recorded in 2023, but still way above average. The reasons why if we jumped back in time maybe 10, 15 years ago, Montreal, we were building only condominiums, practically no-purpose-built rentals. Around 2015, the condo market hit. There was actually a big hit on the condo market, and we started to see big, big inventories, so stock of existing and new condos starting to accumulate.
At that point, developers really shifted, if you will, some of their attention and construction on purpose-built rentals because the condo market was pretty much dead at that point, which was not necessarily the case if we're looking at Vancouver or Toronto. In those times, the markets were quite different. Additionally to that, the economics, if you will, of building in Montreal, and I would say even more in the suburbs of Montreal, is a little bit easier or less difficult that may be in the case of Toronto or Vancouver.
The mathematics of all of that in terms of development costs or construction costs, it's just a little bit easier for builders in Montreal to get those projects off of the ground, basically, and yes, well, strong rental demand that has just been quite steady there.
[0:06:09] GL: Yes. I love how you mentioned condos because that flowed into what I also want to touch on about condo specifically is when we looked 10 years ago, we saw that condo starts outnumbered purpose-built rental starts by five, six to one. It was quite a lot. But over the past decade or so, we've seen purpose-built rentals really increase to – at this point now, it's like a one-to-one ratio between purpose-built rental and condo starts. What do you think is driving that trend? Is it just consumer behavior, or is there something else you think that may be the reason for that?
[0:06:38] TBO: I think it's such an interesting questions because – and to answer that, I think we need to answer it with two different elements. One being looking at the more longer term underlying trends. Then you have the more short-term cyclical trends that are both affecting what we're seeing today. In terms of underlying trends, if I bring you back even further back in time, 35 years ago, early nineties, when you actually see what was being built in terms of multi-unit starts, it was actually a ratio that was one-to-one, actually.
Prior to that, well, actually what explains that shift because we started to build more and more condominiums in the early nineties, many reasons. One of them is just condos became a much more popular option as a dwelling with land being quite limited. Single-family homes, you need a lot of land for that, and so condo started to become more popular. But also, there's been a series of cuts of federal programs that were really pushed towards a social housing or rental housing in the seventies, eighties, and nineties. There was a lot of that government programs that were in place that were actually slightly cut off. That's what kind of explains why that one-to-one ratio really went towards the condo market in those early nineties.
Fast forward, closer to today, now, obviously, one of the reasons for that shift from condo to purpose-built rental building, again, I think there's been a lot of investment and efforts that we're going at the government level to push or to encourage more supply on that side. But also strong demand, I have to say. When we're looking, obviously, high levels of immigration in more recent years, population growth is definitely one of our main drivers in terms of rental demand. That has definitely been pushing demand but also access to home ownership. It has been more and more difficult to access home ownership in Canada in the past 10 years and a lot of reasons for that. There's been a lot of mortgage rule tightening since 2016, more recently increasing interest rates.
Now, trend is shifting a little. We'll talk about that later, but high housing prices and all of that to say that because access to home ownership has been more difficult. Well, that has definitely pushed a lot of households to either stay in the rental space or to create their new household in the rental space as well.
[0:09:21] GL: Yes. We were noticing that, too, just like the – when this home ownership becomes a lot less feasible for people, they're probably looking for rental apartments that have a little bit more space because they want to stay there a little bit longer. We're seeing even on our site just the demand for three bedrooms have really spiked as well, just because we're assuming people are working from home now. They want a bedroom for an office space. They probably want to start a family. If they're going to stay in their apartment for a while, they want more space. We're kind of seeing that on our end, too. It's kind of interesting.
[0:09:47] TBO: It is. It is.
[0:09:48] GL: Something that we loved that was in the report, maybe not the actual number, but what we'd love to see was this new indicator about rent increase at turnover. Basically, when one tenant leaves a unit and then a new tenant moves in. Based on the reports that the average rent increase at turnover was 23.5%, which is a lot higher than what you guys reported the national average of rent increase to be, could you maybe explain the dynamics behind that, particularly maybe in regions with rent control? Because I suspect they're quite linked together.
[0:10:18] TBO: One of the things that we noticed, there's definitely some elements of correlation. When we're looking at high-priced markets and when we're looking at markets where turnover rents are low, we typically will see higher increases of rents for turned over units. That said, rent control market or not, we do see these much larger increases for units that have turned over than for those that haven't.
While rent control can help to mitigate in some cases rapid spikes increases for existing tenants, for example, it's one out of many tools, basically, to really address affordability issues. It's not the only one. You kind of touched on this a little bit earlier, but really where we feel the real solution is really around dramatically increasing the number or the amount of supply. If we have more supply, if supply is sufficient, if we find ourselves in a more balanced market, basically, well, there's less opportunity for these higher rent increases in the end because renters have more and more adequate choices in the end.
[0:11:36] GL: Yes. You know, Tania, we have a difficult time sometimes expressing rent control to some renters who engage with our content or website because I typically say it's a great solution in the short term because as everything is going up dramatically, it's nice to know that your rent is going to stay relatively the same price for the near future, right? But when you look at these long-term trends, particularly rate increase at turnover, that's when you really start to see that it's just a small tool and not the be-all end-all to actually restore affordability. At best, I think it's more of a short-term solution, unfortunately.
[0:12:11] TBO: Well, like I said, I think really the main driver or the main solution will be really focused around adding more supply. I would even say to have a steady influx of supply that comes into the market every year. That is going to help to alleviate some of the pressures that we're seeing right now, for sure.
[0:12:34] GL: Now, how are some of these trends that CMHC is reporting, whether that's rent increase at turnover or supply increases we're seeing in major cities, how do you guys see that influencing tenant behavior and just overall market stability? I know the supply is a good thing because you'll stabilize prices. But maybe what else are you seeing that could influence these behaviors?
[0:12:53] TBO: Yes. That's such an interesting question. When we talked a little bit earlier about turnover, so we said that there's this – we see this link between high increases in rents when the units are turned over and turnover rates. What is the share of units that are actually where people are actually moving in and out? Because we're seeing in Canada a relatively low turnover rate, this is anecdotally. This is like we're looking forward to looking at census data. We also have the Canadian Housing Survey data that looks a little bit into this. But we suspect that there's a lot of households that are either underhoused or overhoused.
When we were asking around behaviors, there might be many cases where the household is living in a unit right now. That is the unit is occupied, but does this unit really respond to the needs of that household in that particular moment? We suspect that there might be a lot more of that. We could think of a growing family. That would need more space. We could think of multiple roommates living together, maybe a little bit of overcrowding in those cases. But underhoused could be also related to the – I have the word in French.
[0:14:18] GL: Let’s hear it in French.
[0:14:20] TBO: But if the unit is adequate as well, right? You could think of maybe a senior that maybe would want to move because the unit is maybe not adequate in terms of accessibility for them, for example. These are a lot of things that we definitely suspect are happening, and those are those kinds of behaviors, if you will, of staying maybe in a unit that does not necessarily respond to their need. That could be something that is happening right now, for sure.
[0:14:50] GL: Yes. No, that's a great answer because I wanted to touch a little bit on because Canada's having an aging population, we're seeing a growing number of families. I was curious how you saw these rental housing needs evolve. But you touched on a little bit there some side of accessibility would help and growing spaces. Is there anything else potentially that you could see with just Canada's population aging a little bit and just amount of families that are looking to rent?
[0:15:12] TBO: Yes, sure. It's actually really interesting that you asked that question because we did release a report maybe a year-ish ago. That was very interesting, and that was looking at the behaviors of senior households towards real estate. There's a lot of question with the aging population in Canada. Well, what is all of that population going to do? Are they all going to move out of their homes? Are they all going to want to live longer in their homes?
What the results showed us because we were looking at, A, are seniors really selling their property, or are they leaving their property, or are they downsizing. If they are downsizing, what are they actually doing? One of the things that we observed was that, indeed, seniors would typically sell their properties but maybe at a later age, maybe a little bit later that we initially anticipated, so fairly some signs that people want to be aging in their home place. Well, not that the other one would not be a home, but in their current home, if I may.
Then another thing that we were also seeing in the data was that, yes, indeed, there was a share of them that were downsizing and a share of them that were actually going towards rentals, another share that was going toward condo. That's interesting because you wonder, okay, well, are these seniors going to be – what type of housing are they going to go towards? There's a lot of differences. We talked about Montreal a little bit earlier, but we definitely saw that in places like in Montreal, there were more seniors that once they decided to downsize, they were actually going for the rental market. We are seeing a lot more projects that are aiming at that specific clientele as well.
[0:17:04] GL: Interesting. Do you think with the clientele changing and supply coming at multi-decade high, do you think we will need a return more for these larger units in multifamily buildings, rather than we were seeing a surge of studio and one bedrooms in recent years? But it sounds like we might actually be needing a little bit different type of distribution of the market where there's two and three-bedroom actually the priority in these new supplies. Are you seeing that? Are you seeing still studio and one-beds? What's happening in the market on that end?
[0:17:35] TBO: I think in the end, housing needs to evolve and change over time. We really see those fluctuations over time, which is why I think it's really important that when we think about adding all of that new supply to the market, we have to make sure that we're adding that supply across the continuum and across the spectrum. When I talk about continuum, it leads me more towards the affordability. Because despite the fact that rental markets have been easing up a little bit, so we did see the vacancy rate increase in Canada from 1.5 to 2.2 percent, we're still facing in the country major, major affordability challenges.
All of that supply that we're adding to the market, it's alleviating some of those pressures. But in many cases it's on the more expensive side and many times very unaffordable for a lot of renters. But I just want to say that in the end, in a context where we are right now with the affordability challenges that we're facing right now and the current crisis that we're still facing right now because despite some easing, we're still in very tight markets, we believe that all supply is good supply.
I don't know if you've seen some of our work. Or we did mention it a little bit in the report, but we have some more research around the concept of filtering. This concept is interesting because what it's basically saying is that, well, all of that and the supply that was added. Yes, despite it being more expensive and maybe unaffordable for many people right now, as in the long term, these units will continue, yes, to grow in terms of their rents. But it will be at a much slower rate. Eventually, in the long term, these units may become more affordable.
Maybe a more immediate effect of that is that, well, all of those new units, a big, big chunk of those are actually occupied, which means that there were other units that were freed up, and so maybe some less expensive units. We don't have any hard data on that, but just to give you a little bit of that context.
In the end, I think supply is not the only answer. We said it is a big part of the solution, but it's not the only one, especially when we want to address some of these more immediate affordability challenges. In order to do that, I think policy needs to address both supply but also affordability, especially for those lower-to-medium-income renters, for sure.
[0:20:18] GL: Yes. You can build as many units as you want. But if no one can afford them, it seems just like it's – we hear that all the time as well from people like, “Great. Supply is great. I can't afford that,” right? I understand that completely, and we do sympathize with people trying to get into the rental market right now. It's got to be the right type of supply they bring into the market, and I think that's a really important point.
I'm curious your answer to this, and I could probably assume, but I still want to hear it from you. Do you think that policymakers and developers, are they adapting quickly enough to meet some of this demand? Because we do mention supplies at a multi-decade high. When I talk to people in the media or journalists, they really want to put two thumbs up and say, "That's great." It is great because, as you mentioned, all supply is good, right? But do you think that they’re adapting quickly enough with the spike that we're seeing? Or is there still so much? Is it a small thing going up the mountain? What do we think we're doing so far on that front?
[0:21:11] TBO: Yes. Well, I think a lot of the new programs and policies that have been put in place in recent years are really trying to address those needs and those gaps for those larger units. You will see it depending – there’s some municipalities that are really trying to push forward and encouraging some developers to build more of these larger units. There's other programs at various levels. There's definitely a l'envie de faire cela, there's a desire to do that, and we're seeing that in the programs.
Now, in terms of is it happening quickly enough, housing takes time. I think we forget that sometimes it takes so much time. Just when we think about the time it takes between project sketch or just the design of an initial project and the first shovel into the ground, it takes a lot of time. Things are moving slowly, yet they're moving slowly in the right direction.
[0:22:13] GL: It's almost like speeding up that process. Why does it take so long? I think it's a huge factor. There's a personal rental being built down my street that was a prefab construction. That thing seemed to go up overnight. It came in almost like big concrete Legos. They put it together. Then it seemed like every time I would drive by every week, it would be that much more done. It was pretty impressive to see. I wonder, maybe the prefab construction is kind of the way we have to lean a little bit more into just to speed up these processes.
[0:22:40] TBO: It's definitely something that it's being looked at, for sure. I know that a lot of federal partners, but also in the industry and the academia, they're really focusing on some of these more innovative options that could help speed up different pieces in that big timeline when we're talking about building more housing. I know that there's current challenges in that space, and some of these need to be addressed or help facilitate some of those pieces to push these. But there's definitely place for more innovation. There's place for more productivity in the construction space, for sure.
[0:23:20] GL: Yes. I remember when the federal government gave a tax break to developers building purpose-built rentals. I would chat with people, and they would always ask me, "Is this a good thing?” This is a good sign, right? I'm like, "Absolutely." They're like, "When can we expect this to take into effect?" I'm like, "Well, how long does it take to build a 15-story multifamily?” It's going to be years until this actually gets the supply, so that's the thing. It's a little bit of a lag behind with this history.
Do you see any emerging trends or maybe certain indicators that policy makers and stakeholders in general should be paying closer attention to? Maybe some things that you see on more of a micro level that you think might be missed by some of these policy makers and industry officials?
[0:24:02] TBO: Well, some things. There's two things that I did want to point forward. One – and I think that policy makers are seeing this. There's been a little bit of talk about it, and it's the question around financial stress amongst renters. That is an indicator that we added to our rental market survey during the pandemic. That's the rent arrears indicator. How many or what's the percentage of rents that are behind on payment? We did maintain – we continued collecting that data point, basically. It’s really alarming, I feel, because we did see a decline very slightly from 2024 to 2023, but it still remains very, very high. We're around eight, nine percent, which is significantly higher than what we're seeing, obviously, on the homeowner space.
There's been a lot of cyclical factors that have been at play in recent years, with obviously inflation haven't been very, very high. We're kind of still feeling those effects today. There’s definitely that financial vulnerability that is very present amongst all Canadians, for sure, but even more so amongst renters. That is definitely something or an interesting indicator, I think, that should be looked at a little bit more closely.
The other one, this is more long-term, but we did release – we actually are conducting a new survey, and we've been doing so for two years. We're launching it again this year. It's for rental development. It's really targeted at investors and developers in the rental space. We launched that in 2022. At that time, developers were facing huge challenges in terms of financial feasibility for these projects to move forward; construction costs, development costs. At that time specifically, interest rates were spiking. They were really increasing very rapidly.
He asked a question around, okay, well, how are you responding to all of these increasing financial challenges, right? A huge number of them were saying that they were putting some of the projects on hold. They were pausing some of the projects. But for the projects that went forward, they were able to launch these rental projects, but they had to do some adjustments. Those adjustments meant higher rents. It meant smaller units. By smaller units, I don't mean building more studios or one-bedrooms. I mean, building the same typologies that we had anticipated but smaller in size. Same number of bedrooms but smaller in size and also using lower quality materials in some cases.
When I think about this, I can't help but wonder what kind of housing legacy we're leaving for future generations? How is that new supply going to age in 10, 20, 30 years from now? Are these units going to really be adequate in terms of housing needs for these future rental households as well? So, yes, I just wanted to plant that seed for us to think about in our collective minds about how could we make sure that we're moving towards more sustainable, more adequate, and just more housing in the end?
[0:27:38] GL: Yes, I love that. I think that's a wonderful insight. I think it brings a good point, too, of it's really expensive for developers. We do feel for them, the costs that they have to take on and the increases that they have seen. It's not developers are on one side. Renters are the other. We’re all in this unaffordability crisis together. I think, yes, costs have to be cut sometimes. They have to also make money, right? They are building these units for profit, right? It sometimes gets, I think, lost sometimes on the consumer and rightfully so because of the unaffordability crisis. But developers also need to make money, too. I understand the plate on them as well, and I think you said that really well.
Now, we're going to wrap up our conversation today with putting you on the spot a little bit because we know you don't have a crystal ball or maybe you do. I'm not sure. But what are your predictions for 2025? We're recording this in the middle of January of 2025. What do you think we can expect this year? If you can maybe add some positivity to it, I think that would be great, too. But what do you expect to see throughout 2025?
[0:28:42] TBO: Yes. Question just in point, we're currently finalizing, working on our forecast as we speak. In terms of specifics, you'll be able to see that. Stay tuned in a couple of weeks or in a few weeks but not so far down the road. You'll have a lot more details until all of our thinking around the rental markets but also the overall housing market in Canada. But when we were doing our analysis for the 2024 rental markets report, there are some elements that were pointing towards a direction. What I mean by that is when we were looking at demand. We talked about supply, supply very, very strong, surpass demand. Demand was very strong, but we started to see some signs of weakening.
We talked about immigration being very strong. That definitely put a lot of pressure on rental demand. However, in the latter part of 2024, the introduction of the international student intake came into place. There were fewer foreign students that were going to some of the universities. We can expect to see some of that, of the impacts of that as well, trickle down into this year as well, so a little bit less pressure on that. There's also the government's new immigration level plan. If the targets are met, that means – so they're estimating a decreasing population, a slight decrease in population. But, again, those are elements that will play towards maybe less pressure on rental demand.
We talked about access to home ownership earlier. In a context where interest rates are coming down, there are a few changes in terms of qualification criteria or even for mortgage insurance for first-time home buyers that can now get a 30-year amortization mortgage. It does make a difference. It may alleviate some of that pressure on the rental demand and maybe some households that will be accessing home ownership.
In terms of supply, I mean, if we look at whatever is currently being built as we speak, so we have approximately 140,000-plus rental units that are under construction right now. These units, if completed over the next year, will be made available for new tenants.
[0:31:12] GL: Yes, let's hope. For those who want to read your reports, where can they find them? Are they accessible to everybody? Let's do a little shameless plug about what you do and how people can find what you guys are providing for us.
[0:31:24] TBO: Are you asking like how do we –
[0:31:26] GL: How can somebody read your reports and maybe deep dive into them themselves if they wanted to? Is it as simple as just going on your website? Do you have to apply for them? How do you read these reports?
[0:31:35] TBO: Oh, okay. No. Yes. All of our reports are really easily accessible on our website. We also have a housing market portal that could give access to the report but also more in-depth data. If you want to look at maybe your specific city or even smaller region, you could find all of that as well. We also have our own podcast series as well. You could find that on YouTube, Spotify.
[0:32:05] GL: I highly recommend that. I highly recommend. It's a great companion piece when the reports come out as well. It just really brings it all together, and we really appreciate that. Again, Tania Bourassa-Ochoa, the CMHC Deputy Chief Economist. I know you’re very busy. We took way too much of your time I’m sure, but I want to say thank you. I’ll show you my bilingualism and say merci. We really appreciate this. Hopefully, next year, we can touch base and do a little prediction of 2026. Thank you so much. Appreciate it.
[0:32:30] TBO: I'd love that. Yes, thank you so, so much. This was really great conversation. Thank you.
[0:32:35] GL: You're very welcome.
[OUTRO]
[0:32:37] ANNOUNCER: Thank you for tuning in to another episode of Sync or Swim, brought to you by Rentsync. If you enjoyed today's show, make sure to visit www.rentsync.com/podcast for detailed show notes, key takeaways, and more. Thanks for listening.