Market Intelligence
Canada's Rental Market Is Easing. The Long-Term Math Still Points the Other Way.
Vacancy is at a 10-year high. Population growth has turned negative. But CMHC still says Canada needs 3.5 million more homes by 2030. Two facts, both true. Here's what they mean for investors in rental real estate.
01
The market has loosened
02
Why demand cooled
03
The structural gap
04
What it means for investors
Part One
01How much has Canada's rental market loosened in 2025?
The short answer
Canada's rental vacancy rose to 3.1% in 2025, up from 2.2% a year earlier — the highest reading in over a decade. Toronto vacancy hit 3% for the first time since 2020; Vancouver reached 3.7%, the highest since 1988. Supply explains most of it: rental construction made up more than half of all urban housing construction in 2025 for the second straight year. With more units opening and fewer tenants looking, rent growth has slowed (Source: CMHC 2025 Rental Market Report).
The 2025 picture has shifted. Canada's vacancy rate — the share of rental units sitting empty — rose to 3.1%. A year earlier it was 2.2%. That is the highest reading in over a decade.1
In Toronto, 3% of purpose-built rental apartments sat empty — the first time we have seen that level since 2020. Vancouver hit 3.7%, the highest vacancy since 1988. Calgary and Edmonton continued to post the widest vacancies among major cities.1
The supply side explains most of it. New rental buildings made up more than half of all urban housing construction in 2025 — a record for the second year in a row.2 Completions ran above the 10-year average in most markets. With more units opening and fewer tenants looking, rent growth has slowed. The Bank of Canada expects shelter inflation to keep easing through 2026.3
The Investor Lens
A softer rental market pressures short-term rent income. It does not change what a building is worth over the long run. Experienced operators expect this kind of swing — it is part of the cycle, not a reason to rethink the strategy.
The Education Lens
What is a "purpose-built rental" — and why do we keep seeing the term?
A purpose-built rental is an apartment building designed and owned specifically as a long-term rental — not a condo that an individual owner rents out one unit at a time.
Purpose-built buildings are run by professional owners at scale. CMHC tracks them as a separate category because their supply and tenant dynamics work differently than condo rentals. When the industry talks about "institutional multi-family," this is the category it means.
Part Two
02Why did rental demand cool faster than expected?
The short answer
Canada's population shrank by about 102,000 people between January 2025 and January 2026 — the first meaningful decline in decades. Non-permanent residents fell from roughly 3.15 million in October 2024 to 2.68 million by January 2026. Budget 2025 lowered permanent resident admissions from 395,000 in 2025 to 380,000 per year for 2026–2028, with sharper cuts to temporary work and student visas (Sources: Statistics Canada Q4 2025 Population Estimates; IRCC 2025 Annual Report).
Supply is only half the story. Demand also pulled back. Canada's population actually shrank by about 102,000 people between January 2025 and January 2026 — the first meaningful decline in decades.4 The number of non-permanent residents (students, temporary workers, and others on non-permanent visas) fell from roughly 3.15 million in October 2024 to 2.68 million by January 2026.
Federal policy is why. Budget 2025 lowered the number of new permanent residents Canada plans to admit — from 395,000 in 2025 down to 380,000 for each of 2026, 2027, and 2028.5 Temporary work and student visa caps were cut more sharply. The Parliamentary Budget Officer now expects flat-to-negative population growth through 2026 and 2027.
For a rental market driven for years by new Canadians forming households, that is a significant change.
The Investor Lens
Policy decisions can be reversed. An immigration plan is a political choice, not an economic law. Over the length of a typical real estate investment — measured in years, not months — today's demand reset may not last.
The Education Lens
Why does immigration drive Canadian rental demand so directly?
New Canadians almost always rent before they buy. When a permanent resident arrives, a student starts classes, or a temporary worker begins a job, they need a place to live — usually right away, and usually a rental.
When admission numbers rise, the renter pool grows. When they fall, it shrinks. Because new arrivals cannot wait years to find housing, the effect moves through the rental market quickly. That is why Canadian rental vacancy tracks immigration more closely than almost any other demand signal.
Part Three
03Has Canada's structural housing gap closed?
The short answer
No. CMHC still estimates Canada needs roughly 3.5 million more homes by 2030 to restore affordability — close to double the current construction pace. Hitting that target would require between 430,000 and 480,000 new units per year. Canada has been building roughly 50–60% of that need for five straight years, and CMHC projects starts to decline through 2026–28 as developers face high costs, weaker demand, and rising unsold inventory (Source: CMHC Housing Supply Gaps Report; CMHC Spring 2026 Housing Supply Report).
This is where the longer-term picture looks different from the headlines.
CMHC still estimates Canada needs roughly 3.5 million more homes by 2030 to make housing affordable again — and 2.6 million more to meet affordability targets by 2035.6 Hitting those numbers would require between 430,000 and 480,000 new units per year — close to double what Canada builds today.
3.5M
Additional homes Canada needs by 2030 to restore affordability
CMHC
430k+
New units needed each year — close to double the current pace
CMHC
2026–28
Period when housing starts are now projected to decline
CMHC Spring 2026
The problem: construction is now expected to slow, not speed up. CMHC projects housing starts will decline through 2026, 2027, and 2028 as developers face high costs, weaker demand, and rising unsold inventory.2 CMHC's own words: today's easing "could lead to a sharper supply gap and a tighter market in the long term."
Visualizing the Gap
Canadian housing starts vs. what's needed — 2021 to 2028
The takeaway: for five straight years, Canada has built roughly 50–60% of what CMHC says is needed each year — and CMHC now projects the pace will slow further through 2028.
Sources: Statistics Canada / CMHC historical starts data (2021–2024); CMHC 2025 Housing Starts release; CMHC Spring 2026 Housing Supply Report; CMHC Housing Shortages updates. Projected column heights shown directionally to illustrate CMHC's stated decline — specific annual forecasts for 2026–2028 are not published.
The Investor Lens
When new building fails to keep pace — even with slower demand — the buildings that already exist and already produce income have historically tended to become more valuable over time.
The Education Lens
What does "restoring affordability" actually mean?
CMHC measures housing affordability against a benchmark year — roughly 2003 to 2004 — when a typical household could comfortably cover shelter costs with a normal share of its income. Today, those costs take a far larger share.
When CMHC says Canada needs 3.5 million more homes by 2030 to "restore affordability," they mean getting back to that benchmark. It is a specific, measurable target — not a political slogan.
The short-term vacancy bump is real. The multi-year math is a different equation.
Part Four
04Why are existing rental buildings in a different position?
The short answer
Existing operating rental buildings sit between the short-term cycle and the long-term shortage. New construction speeds up when conditions are strong and pulls back when they aren't — which developers are doing now. Existing buildings keep operating, keep producing rent income, and don't face the same build-or-pause decision. They respond to both timelines rather than being tied to either alone (Sources: CMHC; Bank of Canada).
The difference between new development and existing, operating rental buildings matters a lot in a market like this one.
New construction is the part of the market that moves with the cycle. It speeds up when conditions are strong and pulls back when they are not — which is exactly what developers are doing now. Existing rental buildings do not face that build-or-pause decision. They keep operating, keep producing rent income, and keep serving tenants through every phase of the cycle.
When new building slows and input costs remain elevated, the economics for a developer bringing new supply to market differ from the economics of an owner operating an existing building. Existing stock does not face the same build-or-defer decision, and it is not exposed to new-construction cost inflation in the same way. The result is a different set of conditions for owners of existing operating buildings than for developers trying to deliver new product into a high-cost market.
The Investor Lens
This is the key distinction for investors: existing operating rental buildings respond to both timelines — the short-term cycle and the long-term shortage — rather than being tied to either one alone.
The Education Lens
What is "replacement cost" — and why does it matter to value?
Replacement cost is the total it would take, in today's dollars, to rebuild an existing building from scratch on a similar site — including land, materials, labour, and financing.
When construction costs, land prices, or interest rates rise, replacement cost rises with them. A ready-made, operating building is economically different from a building that still needs to be built at today's higher costs — though how that difference is actually priced depends on market conditions, buyer demand, and the capital markets environment at any given moment.
For Lankin Investors
The thesis isn't changing — it's being tested.
Lankin's portfolio focus is narrow and deliberate: fully operating, well-located, professionally managed rental buildings in major Canadian markets. That profile is built around the long-term supply–demand math, not the short-term cycle.
A softer rental market is a stress test. Vacancy ticks up, rent growth slows, operating budgets tighten. These are conditions experienced operators plan for, model, and run through. They do not change the income profile of stabilized, operating buildings, and they do not alter the multi-year supply story that informs the long-term investment thesis.
Today's environment is notable in that new construction is pulling back at the same time the structural shortage remains in place. For owners of existing, operating assets, this is a different combination of conditions than one where new supply is accelerating. Existing stock becomes harder to replace at today's cost of capital. Operating buildings continue to generate rent income, subject to market conditions. Over a full hold period, these are the dynamics that shape the investment thesis.
For Prospective Investors
Separate the cycle from the structure.
Private real estate moves on two clocks at once. Short-term vacancy and rent dynamics affect cashflow today. Long-term supply and demand shape a building's value over years. Reading both clocks clearly is the difference between informed investing and timing the cycle.
The common mistake is reading a short-term signal as structural. Every cycle, some investors see softer vacancy and conclude the asset class has broken. Others see tight vacancy and assume the shortage will ease any moment. Both misread the signal — and often misread their entry or exit as a result.
For anyone considering passive exposure to Canadian multi-family, today's environment is useful. It stress-tests the question what am I actually buying? Asset quality, location, operator discipline, and alignment with your investment horizon matter more than the vacancy reading in any given quarter. Existing, operating buildings respond to both clocks — income today, scarcity over time.
References
- Canada Mortgage and Housing Corporation. (2026). 2025 Rental Market Report. https://www.cmhc-schl.gc.ca/professionals/housing-markets-data-and-research/market-reports/rental-market-reports-major-centres
- Canada Mortgage and Housing Corporation. (2026). Spring 2026 Housing Supply Report. https://www.cmhc-schl.gc.ca/professionals/housing-markets-data-and-research/market-reports/housing-market/housing-supply-report
- Bank of Canada. (2026). Monetary Policy Report — January 2026. https://www.bankofcanada.ca/publications/mpr/mpr-2026-01-28/canadian-outlook/
- Statistics Canada. (2026). Canada's population estimates: Fourth quarter 2025. https://www150.statcan.gc.ca/n1/daily-quotidien/260318/dq260318b-eng.htm
- Immigration, Refugees and Citizenship Canada. (2025). 2025 Annual Report to Parliament on Immigration. https://www.canada.ca/en/immigration-refugees-citizenship/corporate/publications-manuals/annual-report-parliament-immigration-2025.html
- Canada Mortgage and Housing Corporation. (2025). CMHC releases latest housing supply gaps report [News release]. https://www.cmhc-schl.gc.ca/media-newsroom/news-releases/2025/cmhc-releases-latest-housing-supply-gaps-report
Common questions
Canada's Rental Market — Questions Answered
How much has Canada's rental market loosened in 2025?
Canada's rental vacancy rose to 3.1% in 2025, up from 2.2% a year earlier — the highest reading in over a decade. Toronto vacancy hit 3% for the first time since 2020, and Vancouver reached 3.7% — the highest since 1988. Supply explains most of it: rental construction made up more than half of all urban housing construction in 2025 for the second straight year. With more units opening and fewer tenants looking, rent growth has slowed (Source: CMHC 2025 Rental Market Report).
Why did Canada's rental demand cool faster than expected?
Canada's population shrank by about 102,000 people between January 2025 and January 2026 — the first meaningful decline in decades. Non-permanent residents fell from roughly 3.15 million in October 2024 to 2.68 million by January 2026. Budget 2025 lowered permanent resident admissions from 395,000 in 2025 to 380,000 per year for 2026–2028, with sharper cuts to temporary work and student visas (Sources: Statistics Canada Q4 2025 Population Estimates; IRCC 2025 Annual Report to Parliament).
How many homes does Canada still need to build by 2030?
CMHC estimates Canada needs roughly 3.5 million more homes by 2030 to restore affordability — close to double the current construction pace. Hitting that target would require between 430,000 and 480,000 new units per year. Canada has been building roughly 50–60% of that annual need for the past five years (Source: CMHC Housing Supply Gaps Report).
Why are Canadian construction starts expected to decline through 2028?
CMHC projects housing starts will decline through 2026, 2027, and 2028 as developers face elevated construction costs, weaker rental demand from the 2025–26 immigration policy reset, and rising unsold inventory. CMHC's own framing: today's easing "could lead to a sharper supply gap and a tighter market in the long term" (Source: CMHC Spring 2026 Housing Supply Report).
What does the short-term/long-term split mean for rental real estate investors?
Existing operating rental buildings respond to both timelines — the short-term cycle and the long-term shortage — rather than being tied to either one alone. New construction speeds up when conditions are strong and pulls back when they aren't; developers are pulling back now. Existing buildings keep operating, keep producing rent income, and don't face the same build-or-pause decision. Outcomes depend on market conditions; past performance is not a reliable indicator of future performance (Sources: CMHC; Bank of Canada; Statistics Canada).