After years of sharp rent increases, a new report from Desjardins finds that rental inflation has slowed in Canada’s largest cities as slower population growth due to federal immigration caps has led to a record wave of purpose-built rental construction.
But the economists behind the report warned that any relief could be temporary if high construction costs and changing policies slow the pace of new supply.
“Renters are finding better deals than they were a year ago,” economists Kari Norman and Maëlle Boulais-Préséault wrote, noting that rental housing inflation, a key component of the consumer price index, has slowed in most major centres.
A long-awaited shift in the rental market
After decades of limited lease construction, the industry is now experiencing its biggest boom in a generation. The total supply of purpose-built rental housing will grow by 4.1% in 2024, the fastest growth rate in more than 30 years. In the first nine months of 2025, the inventory of rental units under construction increased by 26% year-on-year.
Montreal continues to lead the way, accounting for the largest share of new rental starts nationally, followed by Toronto, Calgary and Edmonton. While Toronto and Vancouver rely heavily on investor-owned condominiums to meet rental demand, Montreal’s market remains dominated by traditional purpose-built condominiums.
Desjardins attributes the construction surge in part to government incentives such as GST/HST rebates on new rental projects, accelerated capital cost subsidies and low-cost CMHC construction loans, all designed to offset high financing and materials costs.
The result so far has been a slight increase in vacancy rates and slower rental growth. The bank expects rental inflation to continue to slow until mid-2026 before stabilizing and, in some cities, possibly accelerating again later this decade.
Immigration slowdown reshapes demand
The report points to changes in federal immigration as another major factor behind the shift, with Ottawa’s plan to reduce the share of non-permanent residents from 7.6 per cent of the population to 5 per cent by 2027, a plan that is already reflected in the rental market.
Newcomers, especially students and temporary workers, are the most likely to rent, and a recent slowdown in arrivals is easing pressure on high-cost markets like Toronto and Vancouver.
In Canada’s baseline scenario, national rental inflation continues to fall. If the government achieves its goals, Calgary could even see rental deflation, while rent growth in Toronto and Vancouver could flatten. Quebec is expected to remain an exception due to loose rent-setting rules and strong domestic demand.
How long will the relief last?
While increased supply and reduced demand is good news for renters, Desjardins warned the balance is fragile. Construction costs have risen nearly 20% year-on-year, far outpacing overall inflation.
Builders still face high land prices, labor shortages and lingering trade-related cost pressures. While borrowing costs have eased with lower interest rates, they remain above pre-pandemic levels, which could slow or even reverse rental construction momentum if developers struggle to make projects viable.
“While there are incentives to support such development, rising construction costs and ongoing trade tensions with the United States may dampen builders’ willingness to invest in rental housing,” the economists wrote.
Purpose-built rentals still make up a relatively small share of Canada’s overall housing stock, meaning vacancy rates remain tight despite a surge in construction. Desjardins expects rental inflation to slow next year in all major cities across the country, with the biggest declines in Calgary and Vancouver. But as population growth levels off and financing new projects becomes more difficult, rents could start climbing again by 2027.
A cooling rental market may reduce short-term pressure on homebuyers priced out of ownership, potentially giving them more time to save. But it could also dent investor demand for condos purchased as rental properties, which has been the main driver of pre-sale condo sales in recent years.
Now, Desjardins said, the rental market can finally take a breather after years of tension. How long that pause lasts will depend on whether builders move forward with projects and how Ottawa’s housing and immigration policies shape up.
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Desjardins Economics Consumption tax refund Kari Norman Maëlle Boulais-Préséault Rental market
Last modified: November 13, 2025
