Canada's Rental Market Shifts as Supply Catches Up with Demand

After years of tight conditions and soaring rents, Canada's rental market has entered a new phase. Supply gains and slowing demand have fundamentally shifted the dynamics across the country's largest rental markets, bringing relief to prospective renters while challenging landlords to adapt to a more competitive environment. The imbalance that defined recent years has eased considerably. Rents have stabilized in most major markets, with the average rent paid by new tenants, known as turnover rent, showing notable softening. This shift stems from two key factors: historically strong completions of rental units and weaker demand driven by slower population and economic growth.

Turnover Rents Decline After Years of Growth

According to Canada Mortgage and Housing Corporation's (CMHC) 2025 Rental Market Report, following two years of steep increases, average turnover rents for two-bedroom units fell in most major centres. Calgary exemplifies this trend, where turnover rents dropped from $1,927 in 2024 to $1,836 in 2025, after climbing from $1,486 in 2022. Edmonton and Ottawa saw slight growth, while Montréal continued experiencing ongoing increases. Purpose-built rental operators have responded strategically to these market conditions by offering incentives to attract new tenants. One month of free rent, moving allowances, and signing bonuses have become common tools to fill vacant units and maintain occupancy levels.

However, beneath this surface softening, average rent growth has persisted. The average rent paid by all tenants for two-bedroom units rose 5.1% over the past year, slightly lower than the previous year but still representing steady upward pressure on housing costs. Approximately 40% of this increase came from tenant turnover, as vacated units were repriced at higher levels.

Market conditions varied significantly across major cities. In Toronto, two-bedroom rent growth increased slightly as more tenant turnover allowed units to be repriced to higher turnover rates. However, rents for smaller studio and one-bedroom units slowed due to increased new supply from condominium apartment rentals. Montreal and Halifax experienced accelerating rent growth, especially for older, lower-cost units. Higher provincial rent guidelines helped drive these increases, with landlords seeking the full recommended increase on occupied units in anticipation of smaller allowable guidelines in the future.

Calgary landlords held two-bedroom rents steady to retain tenants and avoid vacancies, while Vancouver and Edmonton saw rent growth slow as landlords faced declining occupancy and deployed incentives to absorb excess supply.

Vacancy Rates Rise Across the Country

In 2025, vacancy rates for purpose-built rentals rose across all major metropolitan areas, pushing the national rate above its ten-year average. Condominium apartment rental vacancies also increased but remained well below purpose-built levels, as owners demonstrated more flexibility on rents to avoid vacancies. Vacancies increased most dramatically in areas with new rental completions or near post-secondary institutions, where demand from international students declined sharply. Toronto's purpose-built apartment vacancy rate hit 3% for the first time since the pandemic, while Vancouver reached 3.7%, the highest level since 1988. Calgary and Edmonton continued to have the highest purpose-built apartment vacancy rates among major markets, though Calgary's rate remained unchanged despite a large influx of rental supply, reflecting strong demand driven by population growth.

Population growth, a critical driver of housing demand, slowed sharply as immigration policy changes reduced new arrivals. Rental demand declined particularly as study and work permit holders aged 15 to 34—the primary drivers of rental household formation, left the country. This trend hit British Columbia and Ontario the hardest, where the young adult population declined most significantly. Slower hiring and rising unemployment, especially among younger workers, further limited new household formation.

Supply Expansion Continues

Despite changing market conditions, Canada's largest cities continued delivering significant rental apartment completions in 2025. Construction remained strong, supported partly by CMHC products and programs, keeping rental completions well above historical trends, particularly in Calgary, Edmonton, and Montreal.The condominium market also contributed to rental supply growth. Rental supply increased as more condominium apartment owners rented out units from record numbers of newly completed projects. Recent softness in Toronto and Vancouver's condominium ownership markets continued pushing more units into the rental pool.

Affordability Remains Challenging

While there are signs that affordability levels are stabilizing in the most expensive markets, challenges persist. With average rents for all tenants rising and income growth slowing due to weaker labour market conditions, affordability remained low overall. However, in Vancouver, Calgary, and Toronto, the rent-to-income ratio improved compared to a year ago.

As incomes grow and vacancy rates stay elevated, affordability is expected to improve more broadly in the coming year. Declining rental arrears across markets provide further evidence of improvement, as low and stable inflation and income growth have helped reduce financial pressures in non-shelter expenses. The Canadian rental market seems to have entered entered a transitional period, offering both opportunities and challenges for renters and landlords alike.