Canada's rental housing sector is experiencing a notable shift, with purpose-built rentals emerging as a key solution to ongoing supply challenges. According to a recent CIBC Capital Markets analysis, this surge represents more than a temporary trend, driven by a mix of market forces and policy support. As a real estate brokerage committed to guiding clients through these changes, we break down the factors fueling this growth and what it means for renters and investors seeking stable housing options.

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Surge in Rental Construction Amid Regional Variations

National housing starts have remained strong, averaging over 250,000 units since early 2025, but the real story lies in the rise of purpose-built rentals. These dedicated apartment buildings have overtaken condo starts in many areas, with completions climbing from 45,000 units in 2019 to 85,000 units as of April 2025. This marks a significant pivot, especially in urban centers where condo markets face headwinds.

Regional differences highlight the uneven landscape. Atlantic Canada and Alberta report record or near-record starts, while Ontario and British Columbia see slowdowns, with Toronto on pace for its lowest annual total in 30 years. Despite these variations, purpose-built rentals account for a growing share of apartment construction, reaching up to 92% in Montreal during the first half of 2025. This trend underscores a broader move toward rentals as a reliable supply source.

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Key Drivers Behind the Rental Boom

Several factors are propelling this unprecedented rise. Strong rental demand, spurred by population growth and affordability barriers to homeownership, plays a central role. Renter households grew 21.5% from 2011 to 2021, more than double the rate for owners, with demand accelerating further in recent years.

Government incentives and support have also accelerated development. Programs like CMHC's Apartment Construction Loan Program backed 88% of new purpose-built rental starts in 2024, making projects more viable. Falling land and construction prices, combined with institutional investor interest, add momentum. Developers traditionally focused on condos are shifting to rentals, attracted by fewer presale hurdles and favorable zoning reforms.

Economic conditions contribute too. With condo presales slowing and investor pullback evident, purpose-built rentals offer a stable alternative. In high-demand areas, this has led to rent growth for occupied units, though advertised rents dipped slightly in some provinces due to immigration caps.

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Challenges and Opportunities in the Rental Shift

While the rise is promising, hurdles remain. High construction costs and development charges, accounting for about 30% of total expenses, deter some projects. Lengthy timelines, often four years or more, compound the issue. In Toronto and Vancouver, condo declines have slowed overall starts, with condominium activity dropping 60% in Toronto amid weaker demand.

Yet, opportunities abound. Purpose-built rentals could help stabilize markets by increasing supply and easing affordability pressures. CMHC projects that to meet demand, starts must nearly double to 430,000-480,000 units annually until 2035. With rentals dominating new builds, this segment may lead the recovery, potentially supported by policies like the revived Multi-Unit Residential Building program.

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Implications for Renters and Investors

For renters, more purpose-built options mean greater choice amid low vacancy rates, often below 2% in key markets. Average rents for two-bedroom units rose year-over-year in Q1 2025, but increased supply could moderate future increases. Investors benefit from tax incentives and steady demand, with cap rates around 4.5% in Ontario signaling solid returns.

At Coldwell Banker Horizon Realty, we see this rental surge as a chance to connect clients with emerging opportunities. Whether you're seeking a rental home or exploring investment properties, understanding these drivers can lead to informed choices. Reach out to discuss how this trend fits your needs in Canada's changing housing market.