Canadian renters have a tough few years in store, according to a new forecast from the CMHC, as those boxed out of an unaffordable housing market compete for a limited supply of rental homes.
Canada Mortgage and Housing Corp.’s new housing outlook released Thursday warns that rental market conditions in Canada are “expected to further tighten,” raising rents in major markets such as Toronto, Vancouver and Montreal.
The existing rental supply is already low, CMHC pointed out in the report, and competition for these units is only getting hotter amid strong immigration levels in Canada.
Data from rentals.ca shows that the average rent in Canada was just over $2,000 in March, up 10.8 per cent from the same month last year. The average monthly rent for a one-bed apartment in Toronto rose 22.2 per cent annually.
Bob Dugan, chief economist at the CMHC, told reporters on Thursday that the short supply of rental homes is especially evident when units turn over in markets such as Toronto.
Last year, the average rent for a Toronto unit that changed hands soared 29 per cent from the previous tenant’s rates, compared with a typical increase of around two per cent year-over-year for renters who stayed in their units, he said.
“That’s because there’s not enough supply. So we need a much better supply housing market, including a much better supply rental market if we want to restore affordability,” Dugan said.
Meanwhile, today’s renters are struggling to become homeowners in Canada’s housing market.
While a drop in home prices over the past year has lowered the bar for some Canadians looking to enter the housing market, rising interest rates have meanwhile made it more difficult to secure a mortgage and break into homeownership.
Have home prices hit their bottom?
Dugan said Thursday that the CMHC expects the end of the housing correction is near and will hit sometime before the middle of 2023 in most Canadian cities, while markets such as Toronto and Vancouver are already seeing sales and prices pick up steam.
“We believe that we’re near the bottom. The correction in existing home sales and home prices has largely taken place,” he said.
CMHC projects that while home prices are expected to finish 2023 at a lower mark than they did the year before, values are expected to rise through the following years.
A lack of homes on the ownership side of the market is expected to be a key factor driving up prices, as competition heats up over limited supply.
Dugan compared the pressures in the housing market to squeezing a balloon: when you tighten one end of the balloon, the pressure only spreads to the other; in this instance, as more prospective owners are boxed out of buying their first home, there’s more demand building up in the rental market.
The problem, he concluded, is that while those unable to buy a home can keep renting, renters have nowhere to go when they’re unable to afford their leases.
Without a realistic on-ramp to homeownership, more Canadians than ever will be fighting for the same rental units, alongside newcomers and foreign students looking for temporary housing while in the country.
“The challenge of affordability in homeownership will drive up demand for rental units,” the CMHC report read.
“Greater rental demand in the face of limited supply will lead to tighter conditions in already strained markets and lead to even higher rents.”
Supply isn’t coming fast enough to restore affordability
CMHC also expects the pace of new homebuilding will slow in 2023 and not return to the highs seen over the course of the pandemic before 2025, which is as far as the forecasts extends.
The agency has said Canada will need to build an extra 3.5 million homes by 2030 to fill in the supply gap and restore a semblance of affordability to the housing market.
But the CMHC meanwhile said it now expects housing starts over the next two years to come in lower than it initially forecast.
Higher building and borrowing costs for builders, in addition to constraints such as a tight labour pool, are throttling the pace at which developers can break ground on new homes.
“These are all things that are fairly inhospitable in terms of the home construction environment,” Dugan said.
Dugan said the slowdown in homebuilding — at a time when affordability in Canada’s rental and housing market is being stretched to new limits — is “alarming.”
The burden of building 3.5 million additional homes in Canada does not fall only to the federal government, Dugan argued, but to the private sector and to provinces and municipalities to find innovative ways to encourage new building and uses for existing units in the face of persistent obstacles to getting shovels in the ground.
“Business as usual isn’t going to work for building these homes. We can’t just keep doing what we’ve done in the past,” he said. “If we want to restore affordability, we have to get busy building their homes.”
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