After years of steep rent increases, a new Desjardins report finds rent inflation easing across Canada’s largest cities as a record wave of purpose-built rental construction meets a slowdown in population growth following federal immigration caps.
But the economists behind the report warn that any relief could be temporary if high building costs and shifting policy slow the pace of new supply.
“Tenants are finding better deals than they could a year ago,” wrote economists Kari Norman and Maëlle Boulais-Préséault, noting that rented-accommodation inflation, a key component of the consumer price index, has already slowed in most major centres.
A long-awaited turn in the rental market
After decades of limited rental construction, the sector is now seeing its biggest boom in a generation. The total supply of purpose-built rentals grew by 4.1% in 2024, the fastest pace in more than 30 years. In the first nine months of 2025, the stock of rental units under construction was up 26% from a year earlier.
Montreal continues to lead the way, accounting for the country’s largest share of new rental starts, followed by Toronto, Calgary and Edmonton. While Toronto and Vancouver rely heavily on investor-owned condos to fill rental demand, Montreal’s market is still dominated by traditional purpose-built apartments.
Desjardins attributes the construction surge partly to government incentives such as the GST/HST rebate for new rental projects, accelerated capital cost allowance and low-cost CMHC construction loans, all designed to offset high financing and material costs.
The result so far is a modest rise in vacancy rates and softer rent growth. The bank expects rent inflation to keep slowing into mid-2026 before stabilizing and, in some cities, potentially re-accelerating later in the decade.
Immigration slowdown reshapes demand
Federal immigration changes are another major factor behind the shift, with Ottawa’s plan to reduce the share of non-permanent residents from 7.6% to 5% of the population by 2027 already being felt in the rental market, the report notes.
Newcomers, particularly students and temporary workers, are among the most likely to rent, and the recent slowdown in arrivals is easing pressure on high-cost markets like Toronto and Vancouver.
In Desjardins’ baseline scenario, national rent inflation continues to drift lower. If the government meets its target, Calgary could even see rent deflation, while rent growth in Toronto and Vancouver could flatten. Quebec is expected to remain an outlier due to looser rent-setting rules and stronger domestic demand.
How long the relief can last
While more supply and less demand are good news for renters, Desjardins cautions that the balance is fragile. Construction costs have risen nearly 20% year-over-year, far outpacing overall inflation.
Builders still face high land prices, labour shortages and lingering trade-related cost pressures. Although borrowing costs have eased with lower interest rates, they remain above pre-pandemic levels, which could slow or even reverse the rental-building momentum if developers struggle to make projects viable.
“Elevated construction costs and ongoing trade tensions with the United States could dampen builders’ willingness to invest in rental housing, despite the incentives available to support such developments,” the economists wrote.
Purpose-built rentals still account for a relatively small share of Canada’s overall housing stock, which means vacancy rates remain tight despite a surge in construction. Desjardins expects national rent inflation to ease across all major cities over the next year, with Calgary and Vancouver seeing the sharpest declines. But as population growth stabilizes and new projects become harder to finance, rents could start climbing again by 2027.
A cooler rental market could reduce near-term pressure on homebuyers who have been priced out of ownership, potentially giving them more time to save. But it could also soften investor demand for condos purchased as rental properties, a key driver of pre-construction sales in recent years.
For now, Desjardins says the rental market is finally catching its breath after years of strain. How long that pause lasts will depend on whether builders keep projects moving and how Ottawa’s housing and immigration policies take shape.
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Last modified: November 13, 2025