20-Year Low in Apartment Vacancies as Canada's Immigration Surges

Government-sponsored immigration exacerbated a severe housing shortage in Canada in 2022, leading to the lowest apartment vacancy levels in more than 20 years and a record rent surge for purpose-built rentals that was the highest since 1990.

A new report from the Canada Mortgage and Housing Corp.—Canada’s federal housing agency—said last year’s surging demand for purpose-built rentals produced the lowest vacancy rate since 2001, leaving few options as they searched for a place to live.

Canada’s vacancy rate for these rentals dropped to 1.9% last year, down from 3.8% in 2021. The average rent for a two-bedroom purpose-built rental increased by nearly 6% last year.

The widespread tightening in the rental market accelerated in the wake of the government’s policy of expanding immigration as a means of dealing with the labor shortage as Canada emerged from the pandemic.

As an influx of new arrivals flooded the most densely populated urban markets in Canada at the beginning of 2022, the Bank of Canada suddenly implemented a series of interest rate hikes that made it harder for renters to purchase properties with spiraling prices, further tightening the rental market.

Last year, the central bank initiated seven consecutive rate heights that raised the prime lending rate in Canada to 4.25%.

A chief economist for TD Bank earlier this month issued a scathing report criticizing the BOC for lulling borrowers into thinking rates would not rise until 2023—causing many of them to grab floating-rate mortgages—and for leaving rates low for too long as the immigration wave began.

Most of the immigrants, invited in by the government to help ease a labor shortage, are settling in five heavily populated urban centers in Canada, including Greater Toronto, exacerbating housing shortages and putting upward pressure on home prices, the TD report said.

Nearly 60% of home buyers grabbed variable-rate mortgages as late as January 2022, compared to 6% at the end of 2019, according to statistics from the Canada Mortgage and Housing Corp.

TD’s Beata Caranci said the central bank’s strategy of maintaining low rates “long after the worst of the crisis had passed” had fueled a surge in home prices, “speculative” behavior, leverage and what she called an “an injection of historic levels of household debt.”

The TD report warned that the surge in risk soon will be compounded by a what it called an “eye-popping” surge in costs to service those debts which is about to hit households across Canada.