For the first time in years, renters have options. Canada's rental market spent 2022 through 2024 in crisis mode with vacancy rates below 2%, bidding wars for apartments, and rent increases that far outpaced wages. That's changing.

The national vacancy rate for purpose-built rentals hit 3.1% in 2025, up from 2.2% in 2024 and above the 10-year average, according to CMHC's 2025 Rental Market Report. Vancouver reached 3.7%, the highest since 1988. Toronto hit 3% for the first time since the pandemic.

And Kelowna? The Central Okanagan now has the highest vacancy rate of any major Canadian metro at 6.4%, nearly double last year's 3.8%.

"The tight conditions that defined rental markets in the past few years in Canada's largest cities loosened in 2025," said Tania Bourassa-Ochoa, CMHC's deputy chief economist. "Historically high rental supply completions combined with weaker demand caused by slower population and economic growth led to a rise in vacancy rates in many large cities."

This isn't a minor adjustment. It's a role reversal. Landlords are now competing for tenants instead of the other way around.

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What Changed

Two forces converged. Supply surged. Demand cooled.

On the supply side, rental construction hit record levels. Purpose-built rental completions reached historic highs across major cities. Projects that started in 2022 and 2023 came online in 2024 and 2025, adding thousands of units to markets that had been starved for supply.

National housing starts climbed 5.5% year-over-year through the first three quarters of 2025, from 169,037 to 178,366. Apartment starts grew 8%. Semi-detached homes jumped 15%. Ontario led with over 48,000 starts, including 13,205 apartment units in Q3 alone.

On the demand side, immigration slowed sharply. Newcomer arrivals fell 19% in the first half of 2025, with the decline deepening from 14% in Q1 to 23% in Q2. Ontario, Alberta, and BC saw the sharpest drops, welcoming 15,279, 8,167, and 6,891 fewer newcomers respectively.

BC now leads the country in emigration, posting an 18% jump in residents leaving Canada, particularly in Q1. That outflow further softens local housing demand.

International student numbers dropped as the federal government slashed study permit approvals. Temporary foreign worker permits declined. The result was less demand for the rental housing that temporary residents overwhelmingly occupy.

Youth unemployment also climbed, reaching levels not seen since the 2009 recession outside of the pandemic. Fewer young people forming households means less rental demand, even as those households are the typical first renters.

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How Landlords Are Responding

Vacant units are taking longer to lease. That's particularly true for new purpose-built rentals in Toronto, Vancouver, and Calgary, where secondary rental markets with condo apartments and basement suites offer more competition.

Condo owners renting out units are more willing to lower rents to avoid vacancies because they're not primarily focused on capitalization rates. They just want someone covering the mortgage. Purpose-built rental operators have different constraints but are responding with incentives.

One month of free rent has become standard in many markets. Moving allowances. Signing bonuses. Free parking. Reduced security deposits.

At 285 Dougall Road in Kelowna, a new purpose-built rental building by Troika that was completed four months ago is still half empty. "We're doing two months of free rent. We have some parking promotions," CFO Jeff Kennedy told Global News.

That's the new reality. Buildings that would have leased up in weeks during 2022 and 2023 are now sitting partially vacant for months. Landlords who refused to negotiate during the tight years are now offering concessions just to get tenants in the door.

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Rents Are Still Rising

Here's the confusing part. Vacancy rates are up. Competition for tenants is real. But average rents are still climbing.

The average rent paid by all tenants for two-bedroom units rose 5.1% nationally in 2025. In Kelowna, rents increased across the board despite the 6.4% vacancy rate. Studios rose $25 to $1,395. One-bedrooms jumped $85 to $1,596. Two-bedrooms increased $183 to $2,118. Three-bedrooms soared $500 to $2,895.

How is that possible? Turnover.

When a long-term tenant moves out, the unit gets repriced at market rates. In many provinces, sitting tenants are protected by rent control that caps annual increases at 2% to 3%. But once they leave, landlords can reset the rent to whatever the market will bear.

The gap between what existing tenants pay and what new tenants pay has widened dramatically. In Halifax, turnover rents are 29% higher than non-turnover rents. In Ottawa, newly built units have vacancy rates of 6.7%, more than double the city average, yet lower-rent units have vacancies under 1%.

That creates a two-tier market. Long-term tenants in older buildings pay below-market rents and rarely move because any new place costs significantly more. New tenants in new buildings pay premium rents that reflect current construction costs and higher financing expenses.

Purpose-built rentals have become more expensive than secondary market rentals. Condo apartments and basement suites often rent for less than new purpose-built units because the owners didn't finance them with today's construction loans at 5% to 6% interest rates.

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Turnover Rates Are Climbing

For years, turnover rates sat at historic lows. Renters stayed put because moving meant paying substantially more for a similar unit. That's changing.

Turnover rates are increasing as renters gain more power in the market. Economic uncertainty and stagnant wage growth haven't disappeared, but increased housing supply gives renters options they didn't have before. They're shopping around. They're negotiating. They're more willing to move if they find better value.

Higher emigration also contributes to increased rental availability. When residents leave Canada, their units return to the market. That creates opportunities for other renters to upgrade or relocate.

In Toronto, turnover rates hit 8.7%, up from record lows. The availability rate for newer purpose-built rentals grew faster than the vacancy rate, indicating more tenant turnover.

This mobility matters because it signals market health. When people can move without financial penalty, the market functions better. When they're trapped in units they've outgrown because moving costs too much, that's market failure.

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The Kelowna Story

Kelowna's rental market went from one of the tightest in Canada to the loosest in just one year. The Central Okanagan's 6.4% vacancy rate is nearly double Calgary's 5%, the second-highest among major metros.

Within the City of Kelowna, the vacancy rate jumped from 4.1% to 6.9%. One-bedroom units hit 9.1%. Rutland has the highest vacancy in the metro at 7.5%. West Kelowna sits at 5.3%.

The supply of rental units increased sharply, with 1,300 new units added to the rental pool in 2025. From January to October, construction started on 2,314 housing units in the Central Okanagan, with 1,762 of those being apartments.

But demand collapsed. The outflow of non-permanent residents hit Kelowna particularly hard. International students, temporary foreign workers, and interprovincial migrants who had been renting in the Okanagan are leaving.

"Non-permanent residents being international students, being temporary foreign workers, as well as an outflow of interprovincial migration to mostly the neighbour province of Alberta, due to mostly cost of living and affordability reasons," explained Shiva Moshtari Doust, BC lead economist with CMHC.

Kelowna's unemployment rate hit 11% in November, the highest in Canada. That job market weakness compounds the rental market softening as fewer people move to Kelowna for work opportunities.

The vacancy rate above 6% triggers policy consequences. The City of Kelowna can now apply to opt out of provincial short-term rental restrictions. A vacancy rate above 3% for two consecutive years gives municipalities that flexibility. The city has already indicated it plans to apply for an opt-out and hopes for early approval before the summer tourist season.

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What This Means for Different Players

For renters, the shift creates opportunities that didn't exist two years ago. Negotiating power. Choice. The ability to walk away if the landlord won't budge. Incentives like free months of rent that were unthinkable during the tight years.

But affordability hasn't improved as much as vacancy rates suggest. Rents for new units remain high because construction costs and financing expenses haven't dropped. The relief comes from having options and negotiating leverage, not from materially cheaper rents.

For landlords, especially those with new buildings, the adjustment is painful. Projects that were penciled out based on 2022 market assumptions are leasing at rates below projections. Incentives eat into cash flow. Extended vacancy periods delay when buildings reach stabilized occupancy.

Some landlords are holding out on price, believing demand will return. Others are cutting rents to fill units and establish cash flow. The ones offering the biggest concessions tend to be in newer buildings with higher debt service costs.

For investors considering rental properties, the calculus has changed. Cap rates compressed during the tight years as property values climbed while rents surged. Now vacancy risk has returned. Rental growth assumptions that looked conservative in 2023 look optimistic in 2025.

For the broader housing market, rental market cooling affects ownership demand indirectly. Some renters who were saving for down payments while enduring high rents now have breathing room. They can save faster or delay buying because renting isn't as painful. That reduces urgency on the ownership side.

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Regional Differences Matter

Not all markets are experiencing the same degree of change. Calgary's 5% vacancy rate is high by recent standards but the market remained stable through 2025 despite significant new completions. Robust demand kept pace with supply growth.

Montreal saw vacancy rates rise due to reduced numbers of non-permanent residents, but average rents still grew 7.2%, outpacing income growth. The increase was largely driven by lease renewals with higher rent increases rather than new tenancies.

Edmonton's rental condo market expanded its role in meeting demand. The share of condo apartments offered as long-term rentals rose to 37%, adding roughly 2,015 units to the rental stock. Even with more supply, the vacancy rate for rented condos stayed at 1.7%, showing continued demand.

Ottawa's rental market eased slightly with vacancy rates rising to 3%. But newly built units had vacancy rates of 6.7%, more than double the city average, while lower-rent units stayed below 1%, keeping turnover low.

Halifax saw vacancy rates increase slightly as migration slowed and supply grew, but rents still climbed 6.7%. The 29% rent gap between turnover and non-turnover units kept people from moving.

These regional differences reflect different immigration patterns, construction timelines, economic conditions, and existing supply-demand imbalances. Markets that were extremely tight are loosening. Markets that were balanced are staying balanced. Markets that had some slack are seeing more.

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The Affordability Question

Higher vacancy rates and landlord incentives sound like good news for affordability. In some ways they are. Renters have more negotiating power and better selection than they did two years ago.

But overall affordability remains historically strained. Housing and living costs continue to outpace wage growth, leaving many renters with limited financial flexibility. Combined with economic weakness, cautious consumer spending, and persistent inflation, any savings from slower rent increases get offset by rising costs elsewhere.

The supply of units affordable to lower-income households remains low. Most new purpose-built rental targets middle and upper-middle income tenants because construction financing at current rates requires rents that low-income households can't afford.

CMHC's deputy chief economist noted that "affordability is still a challenge in most markets, as the supply of units affordable to lower income households remains low."

New rental buildings charge higher rents because they have higher costs. Older buildings with lower operating costs and paid-off mortgages can charge less, but those units rarely turn over because existing tenants are locked in by rent control.

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What Happens Next

The rental market is in adjustment mode. Supply continues coming online from projects started during the tight years. Demand continues softening as immigration stays below 2022-2024 levels.

Market experts anticipate continued adjustment through 2026 as the market absorbs new supply and adapts to subdued immigration and economic growth. Vacancy rates will likely stay above historic lows, giving renters continued leverage.

But a sudden surge in demand or pullback in supply could quickly rebalance the market. Immigration policy could shift again. Economic conditions could improve, encouraging more household formation. Construction financing could get harder, slowing new starts.

The issue of affordable rental housing will remain a policy concern. A return to pre-pandemic price patterns is unlikely for either renters or landlords in the near future. The rental market has fundamentally repriced over the past five years, and that new baseline is sticky.

For Kelowna specifically, whether rents will drop is uncertain. New builds are expected to slow, but Kelowna remains one of the fastest-growing cities in Canada. That means demand could spike again if economic conditions improve or if people return to BC from Alberta as cost-of-living pressures ease.

The vacancy rate provides breathing room now, but the underlying drivers of Kelowna's growth haven't disappeared. The Okanagan's quality of life, climate, and appeal to retirees and remote workers remain intact. The current softness reflects temporary factors like immigration cuts and emigration, not permanent changes to the region's attractiveness.

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The Bigger Context

Canada's rental market reset is happening within a broader housing crisis that isn't resolved. CMHC estimates Canada needs 3.5 million additional homes by 2030 to restore affordability to 2004 levels. The rental market easing in 2025 doesn't mean housing is suddenly abundant.

It means supply and demand came into better balance for rental units specifically, largely because immigration cuts reduced rental demand faster than construction could respond. That's not the same as solving the housing shortage.

Purpose-built rental construction reached record levels in 2025, but maintaining that momentum requires confidence that demand will support the rents needed to service construction financing. If vacancy rates stay elevated and rents don't grow as projected, developers will pull back on new starts.

That creates a risk of undershooting. If Canada cuts rental construction too much in response to current vacancy rates, the market could tighten again once immigration picks back up or economic growth accelerates. Getting supply and demand in sync requires forecasting years ahead, and housing policy has a poor track record of doing that well.

The rental market is at a turning point. After years of unprecedented landlord pricing power, the pendulum has swung toward a more balanced, renter-friendly environment. How long that lasts depends on immigration policy, economic conditions, construction financing, and whether governments maintain support for purpose-built rental development.

For anyone navigating Kelowna's rental market right now, understanding that you're in a temporary window of opportunity helps frame decisions about whether to rent, where to rent, and what to negotiate for, and if you're considering buying instead of continuing to rent or evaluating rental property investments, working with the team at Coldwell Banker Horizon Realty can help you understand how current rental market dynamics affect ownership decisions and property values in ways that matter for your specific situation.