Housing experts are calling on provinces to find better ways to tackle rental turnover — when a unit is occupied at a much higher rent than it was previously — as the Canada Mortgage and Housing Corporation says the vacancy rate in the rental market has reached a new low.
The report, released Wednesday, found the vacancy rate sitting at 1.5 per cent in 2023, the lowest recorded rate since 1988 when the CMHC began recording such numbers.
“We are seeing rental affordability deteriorate nationwide,” Jordan Nanowski, CMHC senior specialist on market advisory for the Greater Toronto Area, told Global News. “This is contributing to less tenant mobility and a continued decline in rental affordability.”
Simply put: demand is outpacing supply, the report found.
With vacancy rates declining for a second straight year, the average rent for a two-bedroom apartment jumped eight per cent to about $1,359 a month. Rent in some cities like Toronto or Vancouver sat much higher than that with the Ontario capital at $1,961, and the B.C. city at $2,181 average rent.
Other cities that saw jumps were Halifax with a rise of 11.9 per cent, Hamilton at 13.7 per cent and Calgary at 14.3 per cent.
In Canada’s condo rental market, an average two-bedroom cost about $2,049 — and the vacancy rate for this market fell even lower to about 0.9 per cent in 2023.
According to the CMHC, much of the demand for rental housing was supported by increased immigration, growth in employment for those aged 15 to 24 and low affordability in home ownership pushing more people to rent.
'Turnover' an issue in rental affordability
McMaster University industry professor Steve Pomeroy told Global News while immigration is a major factor, it’s only part of the problem when it comes to rent increases.
“They’re also a consequence of the regulatory mechanisms that exist in the rental market called vacancy decontrol,” he said. “When a unit is vacated, the landlord can charge whatever the market will bear and in a pressured market, of course, the market pressure is a lot.“
Vacancy decontrol, also known as turnover, is defined as when a unit was occupied by a new tenant who moved in during the 12-month survey the corporation conducted, but higher rents were a result.
When supply isn’t keeping up with demand, landlords can raise rent significantly. This can also occur when a landlord wants to complete renovations, sometimes known as “renoviction,” but then rent to someone new after such a renovation is complete at a much higher cost.
“We do in fact see across the country that we are seeing those significant differences, you know, 20 or 30 per cent higher for turnover rent units than for non-turnover units, which is just reflecting that potential for landlords to raise the rent on vacancies,” Pomeroy said.
He added part of this is because during the period tenants lived in older units such as those that fell under rent control, rent could only be raised by a limited amount. Once that person left after living there for perhaps five years, the unit is no longer under that limit, giving the landlord the chance to increase it substantially.
Hulchanski said more needs to be done by provinces to prevent this from happening.
“Why is it that provinces allow any rent to be charged when somebody moves out of their unit,” he questioned. “That is logical if the rental supply and demand market was working, but it isn’t.”
“You’re losing affordable rental stock for no reason, you’re simply allowing owners to take advantage of market failure, so improved consumer protection is required.”
He said several provinces don’t have regulations to prevent what he called “rent-gouging” and they need to consider laws to tackle this issue.
Part of the issue, Hulchanski said, is a “policy bias” towards homeownership that doesn’t prioritize legislation to protect the interests of renters as much as homeowners, and the fact that there are not as many purpose-built rental housing being built.
“There are people who will simply be renters all their lives and for some, that’s a choice, so nothing wrong with that, but for others it’s not a choice, they simply don’t have enough money,” he said.
“They don’t stimulate market demand or effective market demand, because if they were high income renters, they could afford the rents in new buildings. So low-income people generate the social need for rental housing, not the market demand for new rental housing.”
He said that more focus needs to be put into the rental supply, but also non-market supply like social housing and co-ops.
Pomeroy adds he believes as more longer tenancies see a vacancy and subsequent rental hike, it could result in a “moderating effect” on big rental increases in the short term.
But he doesn’t believe there will be a sudden rental drop in the coming months or years.
“There may be a little slowing in the rate of increase, but I think it’s still going to continue to be a very tight market with upward pressure, creating affordability challenges for folks on low and moderate homes.”
— with files from Global News’ Joe Scarpelli