Rents are expected to continue falling over the next few months due to labour market weakness, slowing wage growth and reduced immigration. (Credit: Getty Images)
Rents are declining and will likely continue to do so in many cities across Canada as rising trade tensions take their toll on a weakening labour market, according to a new Royal Bank of Canada report.
RBC said rents have fallen in half of Canada’s major cities, including Vancouver and Toronto, where they are estimated to have dropped $270 and $160, respectively, in the first quarter from a year ago, based on the average asking rent for a two-bedroom apartment.
Rents are also down in Calgary, Halifax and Kelowna, B.C., underscoring a big shift from the period following the pandemic when rents were rising by double digits in some parts of the country.
“Though we anticipated continued moderation in rents, escalating trade tensions with the United States may be intensifying the trend,” Rachel Battaglia, an economist at RBC, said. “We’re now seeing clearer signs of labour market weakness in trade-exposed industries, which may be contributing to the sustained downward pressure on rents.”
Canada’s labour market has been showing signs of sustained weakness, with the unemployment rate at 6.9 per cent in July compared with 6.6 per cent at the start of the year.
In Ontario, Canada’s manufacturing heartland, the unemployment rate is 7.9 per cent, with the province’s economy recording job losses of 2.6 per cent in the manufacturing sector and 1.9 per cent in the warehousing and transportation sectors in July from the same time last year.
“We have Ontario really bearing the brunt of this. Ontario is the manufacturing heartland, I’ll say, of Canada. And so we’ve had significant labour market weakening, especially in southwestern Ontario,” Battaglia said. “That’s also where we’ve seen a lot of the rental softening happening.”
Her report pointed out that cities in Canada’s trade hub area, including Hamilton, Peterborough, Oshawa and Windsor — all in Ontario — all posted declining or flat rents in the first quarter of 2025 compared with last year.
The unemployment rate has also been increasing. For example, it rose in the Windsor-Sarnia area to 9.5 per cent in July from 7.9 per cent a year ago, Statistics Canada said.
Some households, whose employment has been hurt by United States President Donald Trump’s trade winds, could be abandoning their rental accommodation and moving back in with parents or sharing with other people to save on costs, Battaglia said.
“With the intensification of the Canada-U.S. trade dispute, tariff uncertainty appears to have rattled an already fragile labour market, which could be adding further downward pressure to rental costs,” she said.
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But Canada’s trade troubles are only part of the picture on rents, which were already on the way down before Trump rolled out his tariff agenda.
“In Canada, rents have been easing for about a year now, and the economics behind this trend haven’t really changed much. Big factors here are lower immigration targets. Those are playing a really big role in the rental market,” Battaglia said, who added that newcomers usually rent for the first five to 10 years after arriving in the country.
From January to April 1 this year, Statistics Canada said the population rose by a bit more than 20,000 people, the smallest increase since the third quarter of 2020. Permanent and temporary immigration to Canada has been slowing ever since the federal government announced cuts to newcomer targets in 2024.
Battaglia also said the rise in rental supplies, particularly in Toronto and Vancouver, is pushing rents down, with landlords now offering incentives to attract people to fill vacant units.
Rents are expected to continue falling over the next few months due to labour market weakness, slowing wage growth and reduced immigration. Nevertheless, affordability remains an issue.
Toronto was the only major city during the past six years to post a drop in the share of income needed to cover rent based on the average asking rent for a two-bedroom apartment as a share of pretax median income for all households. That share in Toronto dropped to 31.5 per cent in the first quarter of 2025 from 39.4 per cent in the first quarter of 2019.
“Our message here is that we’ve seen some softness happening, but in a lot of markets, people are still struggling,” Battaglia said. “The rent burden is still pretty high.”
• Email: gmvsuhanic@postmedia.com