An economist with TD Banks says price growth in Canada’s rental housing market is expected to be noticeably slower in 2025, though affordability challenges remain.
Rishi Sondhi told BNN Bloomberg that TD expects prices in the purpose-built rental space to grow by three to four per cent this year, down from a roughly seven per cent increase in 2024 and an eight per cent increase in 2023.
“So, quite a significant slowdown is likely in the rental space this year both in the purpose-built space and for condos,” he said in a Friday interview.
Part of the reason for the expected easing is the recent increase in the construction of purpose-built rental properties, consisting of units designed specifically to be rented out, Sondhi said.
“Purpose-built rental construction has gone up quite a bit. In our view that’s a function of a couple things, first of all, rent growth has been extremely robust, and it helps if you’re a builder or developer and you want to develop a purpose-built unit,” he said.
“The second thing is that federal government programs and provincial government programs have helped put the focus on purpose-built rental construction… so it’s sort of been a one-two punch to get that purpose-built rental stock increasing as it has for the past several years.”
Sondhi said that another factor impacting rent price growth in recent years has been immigration levels and the overall pace of population growth in Canada.
The federal government announced in the fall that it would be lowering its annual immigration targets through 2027, a move Sondhi said has already taken pressure off rental markets.
“One of the big drivers of the really robust rent growth that we’ve seen in recent years has been the really strong population growth that we’ve seen,” Sondhi said, noting that the majority of newcomers to Canada live in rental housing.
“So, this slowdown in population growth, which by the way is showing up in the data already, should put downward pressure on rental demand, and that will certainly weigh on the pace of rent growth that we see this year.”
Despite the expected slow down in rental price growth in 2025, Canadian renters still face affordability challenges that Sondhi said are not expected to improve anytime soon.
“Unfortunately, much like the ownership picture, it’s quite strained. Our rental affordability metric would suggest that there’s really no improvement in what was a strained affordability backdrop last year,” he said.
“So, unfortunately not great news in that respect.”