In Canada, there is a severe shortage of rental housing, and a recent report by RBC suggests that significant growth in purpose-built rentals is necessary to meet current and future demand. According to economists Robert Hogue and Rachel Battaglia, the country’s rental housing stock grew by 2.4% last year, the fastest pace since 2014, largely due to a record-breaking pace of apartment construction in 2022. However, the growth has been uneven across the country, with the largest gains in purpose-built rental stock seen in Calgary and Ottawa-Gatineau, and the smallest percentage increases in Toronto and Montreal.

Despite the growth, the rental housing market is struggling to keep up with high demand, with the vacancy rate reaching its lowest point in 21 years, at just 1.9% last year. Additionally, there has been an unprecedented rent increase in the rental market, with rent growth for a two-bedroom purpose-built unit rising by 5.6% in 2022, and even higher in some cities such as Gatineau (+9.1%), Toronto (+6.5%), and Calgary (+6.0%).

Looking at the rental condo market in some of Canada’s larger cities reveals an even tighter squeeze, with condo rental vacancy rates in Ottawa-Gatineau, Toronto, and Calgary among the lowest in the country, indicating intense competition that will only add pressure to rents. The report highlights the severity of the “rental housing gap,” which is the difference between the projected rental stock at the current rate of increase and the rental stock required to achieve balance and keep up with future demand.

The economists estimate that there is currently a 25,000 to 30,000-unit deficit in the country’s purpose-built rental stock and expect this shortfall to grow exponentially over the next four years as demand soars. The report predicts that Canada could be short more than 120,000 rental units by 2026, nearly four times the estimated shortfall today. To achieve a balanced market with rent stability, RBC economists say Canada will need to add 332,000 units to its current rental stock between now and then.

Hogue and Battaglia suggest that while converting commercial buildings, turning condo units into rentals, and adding rental suites to existing homes would help ease the pressure, these measures alone are unlikely to be sufficient. Instead, the best way to meet current and future demand, as well as provide stability and affordability in the rental market, is to significantly increase the supply of purpose-built rentals.