As housing affordability continues to be a pain point for many Canadians, a new report highlights which parts of the country may see some relief when it comes to rent inflation over the next few years.
According to economists from Desjardins, the number of renters in Canada has significantly increased as more people are being priced out of the housing market.
Between 2018 and 2022, renter households in Canada increased by 16%. In comparison, homeowner households saw an increase of less than 1% over the same period.
Desjardins notes that shelter costs will “continue to be the largest contributor to inflation for the foreseeable future” despite lower interest rates, as they comprise a significant portion of the Consumer Price Index (CPI).
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Since 2007, the rented accommodation portion of the CPI has seen a steady increase. Conversely, the mortgage interest cost component has fallen over the past decade.
While it may not come as a surprise, the Desjardins notes that rental rates have been increasing at a startling pace across Canada.
In Q3 of 2024, inflation in the country hit 8.3%, the fastest it has grown since the early 1980s.
This was also higher than the pace of owned housing price growth, which declined to 5.5% during the same period.
However, experts are advising there may be some relief when it comes to rent inflation, depending on where you live in Canada.
Rent inflation and what’s to come
Provinces without rent control, like Alberta and New Brunswick, experienced the fastest growth in rented accommodation CPI inflation.
While BC and Ontario are the priciest housing markets in Canada, rent inflation was slower in these provinces even though it hit the highest rate in 40 years.
As for cities, Desjardins highlights that rent inflation has been “red hot” in Calgary and Edmonton but has eased in Toronto and Vancouver.
The report notes rent inflation will depend on several factors including population and employment but there is some good news on the horizon for some provinces and larger cities.
BC and Ontario — two provinces which have seen an influx of non-permanent residents (NPRs) over the past two years — will likely see rent inflation rise at a slower pace compared to other places in Canada.
Desjardins
Quebec is expected to see a higher rent inflation increase compared to Ontario due to that province’s rent control policies.
As for Alberta, rent inflation is more cyclical and will likely ease more in Calgary and Edmonton compared to other large Canadian cities because that province has fewer NPRs and a lack of rent control guidelines.
Population could lead to different scenarios
Although Canada has vowed to slow the pace of immigration, different scenarios could pan out, say Desjardins economists.
If Canada’s population declines in line with the federal government’s planned reduction, this could result in an average annual rent inflation of 2.4% from Q3 2024 to the end of 2026.
Desjardins
Desjardins also provided another outlook, where the number of non-permanent residents doesn’t decline as much, staying closer to the Bank of Canada’s (BoC) population forecast for the next three years. In this scenario, an annual average rent inflation of 3.8% would be expected over the next two years.
The financial institution notes that while rent inflation is expected to ease, Canada’s housing market still faces “structural issues,” which could mean “short-lived” relief.
The report concludes that longer-term solutions will require “substantial increases in housing supply and policy efforts to address affordability across both the rental and ownership sectors.”