RBC Forecasts Rental Vacancy Rates Will Exceed 3% for First Time in a Decade as Population Growth Stalls

The headline number is the vacancy rate, but the story underneath it is about two different measures of rent pulling in opposite directions.

Asking rents — the prices landlords advertise for available units — dropped 3.2% nationally between 2024 and 2025, according to Rentals.ca data cited by RBC. The declines were steepest in Canada's two most expensive markets: Vancouver fell 7.9% and Toronto 5.1%, based on Rentals.ca and Urbanation data reported by Canadian Mortgage Trends. Those are not minor corrections. They represent a meaningful reversal of the surge recorded in 2022 and 2023.

Average rent paid by tenants, however, tells a different story. It still grew 5.1% in 2025 — down from 8% in 2023 and 5.4% in 2024, but still positive. RBC's breakdown explains why: landlords' increases on existing tenants contributed 3.1 percentage points to the overall rise, while turnover units — just 12.8% of the stock — saw rents jump 8.7% between old and new tenants, adding the remaining two percentage points.

That gap between asking rents and average rents matters for condo investors and secondary-suite owners. Turnover rent growth — the premium landlords capture when a tenant leaves and a new one moves in — fell below 10% in 2025, down from nearly 24% in the prior two years. The ability to reset rents sharply on turnover has been the single most important lever for investors trying to offset rising mortgage payments. That lever is weakening.

Asking Rent vs. Average Rent: Why the Distinction Matters

The demand side of the rental equation is being rewritten by immigration policy.

Temporary resident inflows fell sharply in 2025, pulling Canada's overall population growth down to 0.9%. RBC expects the number of net new non-permanent residents to drop further in 2026, effectively stalling population growth entirely. Because temporary residents — international students, work-permit holders — are far more likely to rent than buy, they have historically been a critical source of rental demand. Reduced inflows weigh most heavily on Ontario and British Columbia, which have absorbed the majority of temporary arrivals.

The geographic concentration of the slowdown is what makes this story immediately relevant to homeowners. Toronto recorded zero population growth in 2025. Vancouver grew by just 0.2%. Both cities experienced substantial net out-migration — nearly 80,000 residents left Toronto and almost 21,000 left Vancouver for smaller Canadian centres. RBC expects both cities to actually lose population in 2026.

Poor affordability of both owned and rental housing is likely driving those outflows. Toronto and Vancouver remain two of Canada's most expensive rental markets, with average two-bedroom rents of $2,046 and $2,363 respectively — roughly $500 and $800 above the national average. Homeowners who rent out units in these cities are competing for a shrinking pool of tenants willing or able to pay those premiums.

Meanwhile, a strong rental construction pipeline is adding supply at exactly the moment demand is softening. Purpose-built rental starts have boomed in recent years, fuelled by rising rents and government incentives, particularly around Toronto and surrounding Ontario markets like Hamilton, St. Catharines, and Ottawa. RBC notes this pipeline remains robust compared to the ownership market, where depressed pre-construction condo sales are pulling housing starts lower.

The structural composition of Canada's rental stock is what makes this vacancy forecast so significant for individual homeowners.

Canada's rental market is split between a primary segment (purpose-built rental buildings) and a secondary segment (investor-owned units like condos and secondary suites). RBC reports that secondary-market vacancy was just 1.3% in 2025, well below the 2.9% rate in the primary market. That tightness has historically given condo landlords confidence. But it also means any softening hits a market that has been running with virtually no slack.

The scale of the secondary market is enormous. In Toronto, City of Toronto housing data show that just 46% of the city's roughly 558,000 occupied rental units are purpose-built. The remaining 54% sit in the secondary market — condo units account for about 21.5% of all rentals, non-condo secondary units like basement and laneway suites another 13.4%, and subsidized housing 14.2%. CMHC data from other cities tells a similar story: Hamilton reported a record 28.8% of condos being rented out, and Winnipeg held steady at 23.9%, according to CMHC's Fall 2024 Rental Market Report.

When more than half of a city's rental stock depends on individual investors and homeowners rather than institutional landlords, a shift in vacancy rates and asking rents ripples directly into household budgets and investment returns. Toronto alone had approximately 75,000 secondary suites — nearly one in six ground-oriented houses contained a basement apartment — according to a CMHC housing market insight.

The Carrying-Cost Squeeze

The rent softening arrives at a particularly difficult moment for condo investors. A Canadian Mortgage Trends analysis of CMHC data found that condo resale prices have fallen 13.4% in Toronto since 2022, while investor carrying costs rose 24% over the same period. Rents, meanwhile, climbed only 15% — nowhere near enough to offset the cost increase. In Vancouver, prices fell 2.7%, carrying costs rose 29%, and rents grew just 12%. CMHC itself has stated that profitability for condo investors is now under pressure.

By February 2026, rents had fallen to a 33-month low nationally, with rent payments representing 29% of renter household income — below the industry's 30% affordability benchmark for the first time in over six years. Urbanation's president described the downturn as the largest in recent history, driven by a surge in supply arriving just as demand slowed.

The broader home-price correction reinforces the picture. RBC's own March 2026 affordability report noted ongoing price corrections in Toronto and Vancouver. CREA reported the national MLS Home Price Index was down 4.9% year-over-year in January 2026.

In the GTA specifically, average prices have fallen roughly 24% from their February 2022 peak. TRREB-based data shows 416-area condo prices down 8.6% year-over-year to approximately $632,000.

For investors who bought at the peak and are now approaching mortgage renewal at higher rates, the math is straightforward: falling property values plus rising costs plus softening rents equals compressed or negative cash flow. That dynamic weakens investor demand for new purchases, which in turn contributes to the broader price correction — a feedback loop that RBC's rental forecast is accelerating.

RBC frames the current softness as a correction, not a permanent reset. The bank expects population growth to reaccelerate by 2028 as immigration policy recalibrates, which should stabilize rental demand across most markets. The rental construction pipeline, while strong through 2026 and perhaps 2027, may slow if rents fall far enough to make new projects uneconomical without additional government incentives.

For homeowners and small-scale investors, the metrics to monitor over the coming quarters are:

Vacancy rate trajectory. The 3% threshold matters because RBC considers it the floor of a balanced market — not a crisis level. Watch whether vacancy moves materially above 3%, which would put downward pressure on average rents, not just asking rents.

Asking rent direction. Rentals.ca and Urbanation publish monthly data. Continued year-over-year declines, particularly in Toronto and Vancouver, signal weakening pricing power at renewal and on turnover.

Population and migration data. Statistics Canada's quarterly population estimates will reveal whether the Toronto and Vancouver contractions RBC expects actually materialize. If they do, the rental demand story gets harder for landlords in those markets.

Mortgage renewal volumes. A significant wave of fixed-rate mortgages originated during 2020–2021 are now resetting. For condo investors, the combination of higher renewal rates and softer rental income creates a decision point: absorb negative cash flow, or sell into a declining market.

RBC's analysis is clear-eyed about the timeline: the softness is real, the correction is underway, and the forces driving it — reduced migration, rising supply, elevated costs — are not reversing quickly. But the bank also sees a floor. Canada still has a structural housing shortage. Rental construction hasn't reached the point of excess. And when population growth returns, rental demand will follow.

The question for homeowners with rental income is whether their cash flow can bridge the gap.