The rental markets in the United States and Canada cannot be more dissimilar, especially when it comes to apartment rents, which have fallen in most U.S. cities, while spiking across Canada.
U.S. renters “with new leases in January paid a median rent that was 3.5 per cent lower than they would have paid last August,” the Wall Street Journal, using data from Apartment List, reported. Rents have fallen every month over a six-month period for the first time in five years.
By comparison, rents in Canada have been rising quickly. Year-over-year rent increases for one-bedroom apartments were 24.2 per cent in Vancouver and 20.8 per cent in Toronto, according to Rentals.ca data. Even in less populous cities such as Kitchener and London in Ontario, rents for one-bedroom apartments were up by more than 25 per cent.
The average annual increase across major rental markets tracked by Rentals.ca was about 15 per cent for one-bedroom apartments and 14.4 per cent for two-bedroom apartments.
The worsening rental situation in Canada prompted the federal government to offer low-income renters a one-time $500 rental benefit. By late February, more than 500,000 renters had applied for the benefit, and it is estimated that an additional 1.2 million renters will also apply.
Despite similar demographics and economic structures, the drastically different rental markets in the U.S. and Canada may be explained by the differences in their respective rental housing supplies. Whereas rental housing supplies have been on the rise in the U.S., large housing markets in Canada, with a few exceptions, have not had any meaningful increase in rental housing construction.
The result of this supply-and-demand mismatch has become quite apparent in Canada. Higher mortgage rates and falling housing prices have caused sales to decline since early 2022. A slowdown in the resale market meant that many first-time homebuyers extended their rental tenures for longer than they would have had the markets facilitated their transition to ownership. This resulted in lower rental vacancy rates, which have inadvertently pushed up rents in most housing markets.
However, the problem is not necessarily the higher demand for rental units; it’s Canada’s inadequate rental housing supply.
In the U.S., the Wall Street Journal cited CoStar Group Inc. data that forecasts “the biggest delivery of new supply since 1986” and that “half-a-million new apartments are coming on line” in 2023. “The crush of new apartments will give renters more choices, making it more difficult for landlords to raise rents at rates seen early in 2022.”