Canada Housing Market: RBC Economist Calls for More Rental Housing Development

Explore the latest report from RBC highlighting the urgent need for increased rental housing construction in Canada despite recent growth in the market.

Rental housing construction in Canada has experienced a significant uptick in recent years, with the trend expected to continue throughout this year, as per a new report from RBC. The report highlights the need for more supply to meet the growing demand in the market. Rental housing starts have reached record levels in 2022 and 2023, with over 80,000 new units initiated each year. This number is projected to increase further in the current year due to surging demand, supported by new policy measures that are aiding developers in navigating challenges such as inflation and labor shortages.

The rise in population, driven by immigration and interprovincial migration, has fueled the demand for rental housing in Canada. Since 2011, there has been a noticeable shift towards rental housing, with factors such as baby boomers entering the rental market and affordability issues hindering home ownership for many Canadians. Housing starts have already seen an 11 percent increase from the previous year, with anticipated interest rate cuts from the Bank of Canada expected to sustain this growth trajectory.

The majority of homebuilding activity is now focused on new rental construction projects, which have nearly doubled compared to six years ago. On the other hand, the construction of single-family homes has declined significantly, accounting for only three-quarters of the housing start activity observed in 2017. The imbalance between rental housing supply and demand has led to a surge in rent prices, outpacing both inflation and wage growth in 2023.

The rate of home ownership has declined since its peak in 2011, as soaring property values have made it increasingly unattainable for many Canadians. The rental market is described as "exceptionally tight," with the rental vacancy rate hitting an all-time low of 1.5 percent last year, well below the three percent threshold for a balanced rental market. The growing gap between rental demand and supply underscores the need for additional rental housing units to address the backlog.

Governments at various levels have responded to the housing imbalance by implementing rule changes and incentives to promote high-density and rental housing construction. Initiatives such as the federal government's National Housing Strategy in 2017 and recent housing plans have played a crucial role in supporting the expansion of rental construction projects. Provinces like Ontario and B.C., as well as municipalities like Vancouver and Toronto, have also taken steps to bolster their social housing stock and encourage rental development.

The strong demand for rental housing, coupled with government support, has led to a notable increase in rental construction activity, even as other development projects remain stagnant. The policies outlined in Canada's latest housing plan are expected to sustain this momentum and address the growing demand for rental housing in Canada.