Rent Inflation Is Cooling, but Don’t Expect a Quick Return to Affordability September 13, 2024

However, because it's so expensive to buy a home, rental demand is unlikely to fall very much. The latest census revealed a broad-based rise in the share of households that rent between 2011 and 2021 as home prices grew increasingly out of reach. We anticipate that the Desjardins Affordability Index-our measure of homeownership affordability that incorporates household income, home prices, mortgage rates and taxes and fees-will improve as borrowing costs come down and home values only gradually increase. But we don't see the index returning to pre-pandemic levels within the next three years. That's the case in the four largest provincesExternal link., and we don't think that will change even if there's a recession or if listings surge.

The supply side of rental markets is at the intersection of multiple forces. On the one hand, builders across the country have clearly responded to strong rental demand by increasing condominium and purpose-built rental construction (graph 3). Various federal, provincial and municipal policy measures should also continue to support rental construction going forward. But despite this rental construction boom, most local markets remain severely undersupplied. The number of unabsorbed housing units is very low across most major cities. Moreover, the latest CMHC Rental Market ReportExternal link. highlighted a record-low vacancy rate at the national level, with sharp declines across multiple major centres. These indicators suggest we could see quick absorption of any new supply, even if NPR levels decline. Finally, our work published this week identified the myriad challenges facing Canada's homebuilding ambitionsExternal link..

The key takeaway is that while we anticipate that rental price increases will slow in the months ahead, structural factors look likely to prevent a more significant improvement. Stay tuned for more research on this topic from Desjardins Economic Studies in the months ahead.