Rising interest rates are partially to blame for a slowdown in Canadians transitioning from renting to homeownership, Canada’s housing agency reported today.
In its Annual Rental Market Report, the Canada Mortgage and Housing Corporation (CMHC) said the slowdown in renters transitioning to ownership is one of several factors that has driven up rental demand. As a result, the national vacancy rate for purpose-built rental apartments fell to 1.9%, its lowest level since 2001.
“Normally in the rental market you’d be seeing a vacancy rate of 3%, 4%, 5%, but in Toronto and Vancouver you’re seeing 1% and 2%,” Aled ab Iorwerth, deputy chief economist at CMHC, said during an interview on BNN Bloomberg. “So, the vacancy rate—particularly in our large cities—is really, really low.”
CMHC pointed out that despite a marked increase in rental supply in many of the country’s large cities, it couldn’t keep up with “surging demand,” which it says was driven higher by migration, youth employment and a slower transition to homeownership.
“Rapidly rising prices and higher mortgage rates may have slowed transition to homeownership for some renter households who had considered buying in 2022,” the report noted. “These households have possibly remained on the rental market, thereby increasing demand.”
Homeownership rate peaked in 2011
Canada’s homeownership rate currently stands at 66.5%, as of 2021, according to data from Statistics Canada. That’s down from the peak of 69% in 2011.
Still, over 10 million households in Canada own their home, more than at any point in the country’s history, and that number is continuing to grow.
Canada’s homeownership rate
Note: The homeownership rate is the proportion of all households that are owner-occupied.
The growth of renter households, however, is growing at a faster pace—over twice as fast. The number of renter households in Canada grew by 21.5% from 2011 to 2021, while owner households grew by 8.4%, according to Statistics Canada.
StatCan noted that the growth in rental rates reflects the increased construction of multi-unit buildings, reflecting a growing trend of the densification of large urban centres.
Prior to 2011, apartments accounted for less than 40% of building permits. But since the start of 2011, multi-unit building permits accounted for 68.1% of units created, and 73.2% in 2021.
Rental pricing up 12%
For those who are able to find suitable rental apartments amid the growing demand, they’re paying significantly higher prices.
Average listed rents as of December are $2,005, up 12% from a year ago, according to the monthly Rentals.ca report. For the full year, rents were up 10.9% in 2022, reversing the price trends of both 2021 (-1.6%) and 202 (-1.6%).
The highest average rental rates were seen in the cities of Vancouver (+21.2% year-over-year) and Toronto (+22.7%).
For vacant units, prices are even higher. CMHC’s report found the average asking rent for a vacant unit was nearly 18% higher than overall rents for occupied units.
“Rental demand is primarily being driven by a quickly growing population that is finding it increasingly more difficult to afford homeownership or find suitable rental housing,” said Shaun Hildebrand, president of Urbanation and author of the Rentals.ca report.
“Looking ahead for 2023, rents are expected to continue rising, but less heated growth can be expected as the economy slows and new rental supply rises to multi-decade highs,” he added.