Real Estate

Rent or buy? An expert weighs in on the sky-high rental market

The deputy chief economist with Canada Mortgage and Housing Corporation on Canada’s most expensive places to rent and the future of housing
Mathew Silver

Rental rates are soaring across Canada. Over the past year, average rent prices have increased nearly 18 per cent in Ontario, 15 per cent in British Colombia, and 12 per cent in Alberta—while in Atlantic Canada rents have risen by a whopping 32.2 per cent compared to last year.

To help explain why, we spoke to Aled ab Iorwerth, Canada Mortgage and Housing Corporation’s deputy chief economist, who shares his expertise on the Canadian rental market and what to expect going forward: 

 

Tell me a bit about your role at CMHC. 

My role is to analyze housing data from an economic perspective. I’ve been in economics my entire career, but started focusing on housing and rentals in 2016. I’ve written a few major reports on housing. The first one, in 2018, examined escalating house prices across Canadian metropolitan areas. The other report, in 2022, looked at how much housing supply we needed to reach affordability. 

Safe to say you’re an expert on the topic? 

Yes. 

That’s good. So, what’s happening in the Canadian rental market right now?

We don’t think there are an adequate supply of rental units across Canada, specifically in Toronto and Vancouver. Vacancy rates are low. First, the problem is even finding a place to rent. Then, when people are changing rental units, their rents are going up significantly. 

Why is that?

It’s part of a general pattern: there’s very strong demand for housing in those two cities, and not enough housing being built. It’s driving prices up in the ownership and rental market. The additional factor now is that mortgage rates are going up, which increases the cost of home ownership. That means, instead of buying a house, people are more likely to stay in rental units, driving up the cost of renting. Higher mortgage rates, fewer home buyers, more renters. There’s also been an increase in the flow of immigration. A lot of those people will rent. In 2011, the home ownership rate in Canada peaked at 69 per cent. It’s now at 66.5 percent, whereas the growth in renter households is up 21 per cent. 

MORE: How Toronto’s housing market is transforming the rest of Canada

Low supply, high demand. I think I learned about this in high school or something. So, how much are rental prices increasing right now? 

Some provinces—like B.C., Manitoba and Ontario—have rent control policies. If you’re in a rental unit and continuing to rent the same unit in a rent-controlled province, rents have probably gone up two per cent. And if you’re changing units, rent could go up more than 10 per cent. Here’s a couple of examples of how prices have gone up. From 2011 to 2021 in Montreal, the price of a one-bedroom rental has risen from $641 a month to $821. In Toronto, over that same time period, a one-bedroom rental went up from $977 to $1,439. 

Yikes. Let’s say I wanted to find the cheapest rental in the country. Where would I look? 

In Quebec. The average rent for a two-bedroom in Quebec City and Montreal is roughly $940 a month. 

And where is it the most expensive?

Vancouver is the worst by a long shot. Monthly rent for a two-bedroom in Vancouver is $2,498. Toronto is $2,370. And to get a sense of what it looks like across the country, here are some examples: Victoria is $2,116, Halifax is $1,530 and Winnipeg is $1,406. 

Which part of the population is suffering the most from high rental prices? 

Younger people and low-income households. Given where house prices are these days, I don’t think many people are going from university straight into home ownership. 

RELATED: Rent hikes priced me out of my Toronto apartment. So I moved in with my 65-year-old aunt.

I guess we need more units. How much more housing do we need to reach affordability?

By 2030, we need 3.5 million units more than what is currently being built. In an average year, we start building somewhere between 200,000 and 250,000 houses. We need to double that. 

Any suggestions?

There are a few things. We need the government to speed up the approval process for getting building and zoning permits. A lot of this has to do with the fees associated with submitting an application, which make the process lengthier and more complex. We need changes in the private sector to improve construction technology so we can build faster and at a lower cost. There’s also concern about a labour shortage in the construction industry. We need more skilled workers, whether it’s more training, or increased immigration of people with the appropriate skills. The industry needs to make itself attractive to workers. Higher wages would help, too. 

What do you expect to happen in the future? Is it going to get worse?

If things continue at this rate, with low vacancy rates and rising rent prices, the economy will start to deteriorate in cities like Toronto and Vancouver. People will be reluctant to move there. The population, GDP and quality of services will start to decline. For example, it will be too difficult to get staff at restaurants and coffee shops. So business owners will move to lower-cost cities—from Toronto to Ottawa, or Vancouver to Edmonton.

How does Canada rank around the world in terms of affordable rentals?

I’m not aware of data on that, but there’s international comparisons of house prices. In countries like Canada, Australia and New Zealand, house prices have gone up enormously, owing to higher levels of debt to personal income. It’s mortgage debt. Prices have gone up in other countries too, but they’ve had a commensurate increase in income. Prices have been relatively more stable in the U.S., for example. 

Pick one: rent or buy? 

Technically, we don’t give advice on renting versus buying. Our goal is to make sure everyone has a place they can afford. But here’s my concern: inflation is high across the globe right now because of the pandemic. At CMHC, we’re already projecting a slight recession next year. Employment growth will come down, people will reduce their consumption of goods and services, leading to a slowdown in the overall Canadian economy. Perhaps now is not the best time to incur large amounts of debt. If people have large amounts of debt and lose their jobs, it can be impossible to pay it off. 

That’s a roundabout way of saying rent, right? 

Yeah.