Newcomers to Canada are Driving Demand for Rental Housing

Newcomers to Canada are driving demand for rental housing and prices, and that trend will continue into 2023, according to a recent national rent price survey. 

Canada admitted a record-breaking 431,000 new permanent residents to Canada by the end of 2022. 

This surge in immigration (mainly from India, the Phillippines and China) will, experts say, have a significant impact on both the rental and home-buying markets moving forward. 

According to year-end information from Rentals.ca and Urbanation, renters in Canada saw average annual rent hikes in 2022 of 10.9 percent. Another five percent hike is predicted for 2023. 

In December, average monthly rent rose 12.2 percent to settle at $2,005 on a year-over-year basis, according to the monthly rental report, which surveyed 35 cities. 

Vancouver recorded the highest monthly rent for December, showing a year-over-year increase of 16.8 percent for one-bedroom units ($2,596 a month )and 17.9 percent for two bedrooms ($3,562 a month). 

In second place was Toronto, with a year-over-year increase of 21.3 percent ($2,457) for a one-bedroom unit and 18.1 percent ($3,215) for a two-bedroom unit.

Calgary, an increasingly popular destination for newcomers and settled Canadians, was third. The city had an average year-over-year increase of 22.6 percent to $1,816 per month for purpose-built and condominium apartments.

Ottawa and Edmonton ranked fourth and fifth for apartment and condo rentals in December,  with annual increases of 14.5 percent (Ottawa) and 11.7 percent (Edmonton). 

Population growth spurring rental demand

Shaun Hildebrand, president of Urbanation, observed in the report that immigration and higher borrowing costs kept rental demand strong in the face of falling supply.

“The Canadian rental market had one of its strongest years ever in 2022, more than reversing any weakness experienced during the pandemic,” he said. “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. "

Hildebrand added: "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.”

In terms of more renters entering the market in the years ahead, Canada hopes to land 465,000 new immigrants in 2023. That number will rise to 485,000 newcomers in 2024 and will jump in 2025 to 500,000 new arrivals.

The majority of newcomers are from India, the Phillippines and  China. Typically newcomers rent for 3-5 years before buying a home in Canada.  

Also, the most recent census showed that immigrants comprise, at 23 percent,  their largest-ever share of the country's total population. That breaks the record established 100 years ago.

Rent prices expected to slow

The Rentals.ca report notes that rents are forecast to increase only by five percent in 2023 because economic and employment conditions will soften after the quick increase in interest rates and record-breaking rents.

According to Rentsync's National Rental Demand Report, in 2023, Canada is likely to see "a continued tightening of renter demand and the intensification of competition amongst properties, with fewer renters looking to move and more properties becoming available."

Many of the major markets across Canada are still facing a severe undersupply, which may prevent a complete reversal in the growth of rent prices - Adi Brar, Mainstreet Equity Corp.

 The report says that the decreased demand and growing supply will likely have the effect of slowing rents.

"A complete reversal is, however, unlikely as many of the major markets across Canada are severely undersupplied while also showing low vacancies," the report notes.

Will rents fall in 2023 or just stabilize?

The Rentsync report also warns that it's too early to predict whether rents will fall or just stabilize. It notes,  however, that "this will offer relief to many of those who have felt price exhaustion from the recent hikes in achievable rents seen throughout much of the country.

Adi Brar, portfolio advertising and market research manager for Mainstreet Equity Corp., points out that the Rentals.ca National Rent Report and the Rentsync National Rental Demand Report suggest that rent prices in Canada may stabilize in the coming months.

"However, it's worth noting that many of the major markets across Canada are still facing a severe undersupply, which may prevent a complete reversal in the growth of rent prices," said Brar. "Despite this, the reports indicate that a slowing down in the rate of rent inflation is likely due to a combination of factors such as typical seasonal occurrences, a record high for total apartment completions, and a tepid demand and growing supply which will likely have the effect of slowing rents."

Atlantic provinces saw population and rent price growth

Mainstreet is a Canadian-based real estate company headquartered in Calgary, Alberta, that provides apartments to renters in Western Canada. The company was founded in 2000 by Bob Dhillon.

The annual rent increase figure of 10.9 percent in the Rentals.ca report was calculated by taking the weighted average for rents across all 12 months of 2022 and dividing it over the weighted average rents across all 12 months of 2021, Rentals.ca said.

Provincially, Nova Scotia (and the other Atlantic provinces) had both the fastest-growing populations in 2022, and the greatest rent uptick.

Predicting Alberta rent prices ford newcomers 

In addition, British Columbia (18.5 percent) and Alberta (16.8 percent) also experienced annual rent growth equal to population growth. Ontario was next with a 15.5 percent hike in annual rent growth. Quebec was the slowest-growing province for both population and rent last year and experienced a 6.9 percent annual rent hike.

As for rent prices in Alberta, which experienced record population growth in 2022, Mainstreet's Brar says it's hard to predict right now for newcomers to Canada where prices are headed.

"A few factors are at play here compared to the rest of Canada," he told Rentals for Newcomers. "A strong pent-up demand for oil post-pandemic, record inter-provincial in-migration, high immigration, low cost of living, low supply of purpose-built rental housing: if all these major factors that led to the current growth in rental rates are still at play, we will see a strong and continued demand going into 2023."

Rental demand in 2022 was high

In January, Canada Mortgage and Housing Corporation (CMHC) released its 2022 Rental Market Report.  Here's a look at some of the highlights from that report: 

• Rental housing supply surged but demand outpaced growth — leaving the national vacancy rate at a near-historic low.
• New data shows that average rent growth for 2-bedroom units was significantly higher for units that turned over to a new tenant than the ones that didn’t.
• The average rent for a 2-bedroom apartment reached an all-time high.
• Low rental housing stock disproportionately impacted low-income renters.
• Rental condo market supply increased but conditions remain tight.

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