Canada’s Rents Are Falling as a Massive Supply Wave Hits the Market

Canada’s rental market is undergoing a major shift in 2026, as a wave of new apartment and condo supply enters the market at the same time population growth slows sharply.

According to a new report from BMO Economics, rental conditions are becoming increasingly challenging for landlords and investors, particularly in high-supply regions like Ontario and British Columbia.

After years of aggressive rent growth and historically low vacancy rates, the balance of power in many markets is beginning to shift back toward renters.

A Major Wave of New Supply

One of the biggest drivers behind the change is the sheer amount of housing currently under construction across the country.

BMO estimates that more than 180,000 rental units are actively being built nationwide, marking one of the largest rental construction waves Canada has seen in decades. For the first time, purpose-built rental construction now exceeds the number of condo and homeownership units being developed combined.

In addition to dedicated rental buildings, many investor-owned condos currently nearing completion are also expected to enter the rental market, adding even more supply over the coming year.

Much of this development boom was triggered by the extremely tight rental conditions seen in recent years, along with government incentive programs and financing initiatives designed to encourage purpose-built rental housing.

However, many of these projects are only reaching completion now, just as demand conditions begin cooling.

Slowing Population Growth Changes the Equation

At the same time supply is rising, demand growth is slowing significantly.

Canada’s population growth has cooled sharply following federal immigration policy changes and new restrictions on non-permanent residents, including international students and temporary foreign workers.

These groups previously accounted for a major share of rental demand in large urban markets across the country.

According to BMO, Canada’s population recently recorded its first annual decline on record, a dramatic reversal from the rapid growth seen throughout 2023 and 2024.

That shift is now leaving some rental markets with more available inventory and fewer tenants competing for units.

Rents Continue Moving Lower

The result has been a steady decline in asking rents across many major cities.

Recent data from Rentals.ca and Urbanation showed average asking rents in Canada fell nearly 5% year-over-year in April, marking the 19th consecutive annual decline. National average asking rents have now fallen back to levels last seen roughly three years ago.

The softness has been especially noticeable in:

• Bachelor apartments

• One-bedroom condo units

• Investor-owned downtown condos

• Markets with heavy construction pipelines

  
  

The pressure has been strongest throughout Southern Ontario and parts of British Columbia, where both condo construction and rental development have been particularly aggressive over the past several years.

Meanwhile, some smaller provinces including Nova Scotia, Saskatchewan, Newfoundland and Labrador, and Manitoba have continued to see rent growth.

Tougher Conditions for Investors

The changing market is also creating new challenges for real estate investors.

For years, many investors relied on rapidly rising rents and strong property appreciation to justify purchasing condos as rental properties. But with rents softening and price growth slowing, those economics are becoming less attractive.

BMO warned that current cap rates in many markets may no longer provide enough compensation relative to safer fixed-income investments, especially when accounting for:

• Higher financing costs

• Tenant risk

• Slower rent growth

• Flat or declining condo prices

  
  

Smaller condo units appear especially vulnerable, as many investors concentrated heavily in studio and one-bedroom properties during the condo boom years.

Affordability is Improving Slowly

While falling rents may create pressure for landlords, they could offer some relief for renters after years of rapid housing inflation.

Average rents remain significantly higher than pre-pandemic levels, but the recent decline is beginning to improve affordability in some markets. Lower rents may also encourage some renters who had previously been priced out to re-enter the market.

At the same time, improving affordability in the resale housing market could lead some renters to transition into homeownership instead, creating additional pressure on rental demand.

A Market Reset Underway

Canada’s rental market is not collapsing, but it is clearly entering a different phase. The combination of:

• Record rental construction

• Slower immigration growth

• Softer economic conditions

• Elevated borrowing costs

• Cooling investor demand

is creating a more balanced rental environment after several years of extreme tightness.

For renters, that may mean more negotiating power, increased incentives, and greater choice. For landlords and investors, however, the coming year could require more conservative expectations as the market adjusts to a rapidly changing supply-demand landscape.

Sources: Canadian Mortgage Trends, CBC News