Increasing rental housing starts still not enough to meet demand

Despite a significant increase in rental housing construction in Canada, there is still a need for more units to address the demand backlog, according to a recent RBC report.

RBC economist Rachel Battaglia noted that rental housing starts reached their highest levels in decades in 2022 and 2023, with over 80,000 new units initiated each year. This number is expected to rise even more in 2024 as surging demand and new policy measures encourage developers, despite high inflation challenges and skilled labour shortages.

Housing starts have already increased by 11% from last year, and anticipated interest rate cuts from the Bank of Canada are expected to maintain this trend.

Most homebuilding activity is coming from new rental construction projects, which have nearly doubled from six years ago. Meanwhile, the construction of single-family homes has dwindled to just three-quarters of the housing start activity seen in 2017.

The growing popularity of rental housing is attributed to demographic shifts and the unaffordability of home ownership.

The report highlights a severe imbalance between rental housing supply and demand, causing rent prices to soar. Annual rent growth in 2023 outpaced both inflation and wage growth. The rate of home ownership has declined since its peak in 2011, as home values have skyrocketed.

The rental housing supply shortage is described as “massive,” with the rental vacancy rate falling to an all-time low of 1.5% last year.

Between 2017 and 2023, demand for rentals increased more than three times faster than the growth of purpose-built rental stock. Secondary suites and condo apartments have only partially bridged the gap.

The federal government introduced its National Housing Strategy and more recently Canada’s Housing Plan, which includes programs to boost rental housing construction. Provinces like Ontario and B.C. have their own plans, while municipalities like Vancouver and Toronto — the most expensive major cities in the country — have also taken steps to expand their social housing stock and encourage rental construction projects.

This report by The Canadian Press was first published on July 3, 2024.