Canada’s housing market has seen a noticeable shift toward rental housing in recent years, driven by a variety of factors such as affordability challenges, demographic changes, and government incentives.
In 2024, rental housing construction reached new heights, with purpose-built rentals making up a record-high 47% of all housing starts in the country’s six largest Census Metropolitan Areas (CMAs). This shift is shaping the landscape of housing development, particularly in cities like Montréal and Alberta’s Edmonton and Calgary, where rental construction is growing rapidly.
In major markets, the growth in purpose-built rental (PBR) construction has become one of the most significant developments in the housing sector. Montréal, for example, has been at the forefront, with rental starts making up the majority of new housing construction. Alberta has also seen a significant rise in rental starts, particularly in Edmonton and Calgary, where economic recovery and population growth have spurred demand for rental units.
The rising cost of homeownership, especially in high-demand areas like Toronto and Vancouver, has pushed many Canadians toward renting. These affordability issues have made purpose-built rentals more attractive to developers, who see strong and sustained demand in the rental market. This shift has been further supported by government policies aimed at encouraging rental development, including tax incentives, grants, and relaxed zoning restrictions in some regions.
Government Incentives and Affordability Issues
Affordability remains a key driver behind the surge in rental construction. As home prices continue to rise beyond the reach of many Canadians, especially first-time buyers, the demand for rental housing has skyrocketed. In response, both federal and provincial governments have introduced incentives to encourage developers to build more rental units.
For example, the Canada Mortgage and Housing Corporation (CMHC) has expanded its rental construction financing initiative, offering low-cost loans to developers building purpose-built rental housing. In addition, several provinces have introduced targeted measures to stimulate rental construction, such as grants and tax breaks for developers. These efforts aim to address the growing demand for rental housing, particularly in urban centers where affordability is a critical issue.
Regional Trends: Strong Growth in Montréal and Alberta
Montréal has emerged as a leader in purpose-built rental development, where a significant portion of new construction is now focused on rental housing. The city’s growing population, coupled with high homeownership costs, has made rentals an increasingly popular option for residents. The number of rental housing starts has surged in recent years, with developers focusing on mid- and high-rise apartment buildings to cater to the city’s growing rental demand.
In Alberta, both Edmonton and Calgary have seen a marked increase in rental construction, spurred by a combination of population growth, economic recovery, and relatively affordable land costs. With demand for rentals growing faster than the supply of ownership housing, both cities are now home to several large-scale rental developments.
Challenges in High-Cost Markets: Toronto and Vancouver
Despite the surge in rental construction, developers face significant challenges in high-cost markets like Toronto and Vancouver. The cost of land, materials, and labour in these cities has made it difficult to build new rental units at an affordable price point. Moreover, high development charges and restrictive zoning laws have further complicated the process, making it less financially viable for developers to build rentals.
In Toronto, for example, the rental vacancy rate remains low, but developers are finding it increasingly difficult to secure financing and approvals for new rental projects. Vancouver faces similar issues, with sky-high land costs and a lengthy approval process delaying many rental developments.
Rental Housing Impact on the Broader Market
The surge in rental housing construction has had a noticeable impact on the broader apartment construction market. In cities like Montréal and Calgary, competition between rental and condominium projects has increased, with many developers choosing to focus on rentals due to the stronger demand and easier financing. This shift has been particularly pronounced in cities where condominium starts have slowed, leaving rental housing as the main driver of new apartment construction.
Moreover, rental apartment starts have contributed to a more balanced housing market in several major CMAs, helping to ease some of the pressure on housing supply. However, this trend also presents new challenges, as developers must navigate a slowing rent growth environment. Rising construction costs and slower rent increases could create obstacles for future rental developments, particularly in markets where costs remain high.
Future Outlook for Rental Construction
Looking ahead, the future of rental construction in Canada remains closely tied to economic conditions, government policies, and market demand. While rental housing continues to account for a growing share of new construction, developers face several hurdles, including rising costs, slower rent growth, and ongoing challenges in securing financing for new projects.
Nevertheless, the demand for rental housing is expected to remain strong, especially in markets like Montréal and Alberta, where economic and population growth are driving the need for more rental units. In contrast, high-cost markets like Toronto and Vancouver will likely continue to see slower rental development, as affordability challenges and regulatory barriers remain persistent issues.