CMHC study: Lower rents today could result in a worse housing shortage tomorrow

But purpose-built rental construction has expanded dramatically over the past decade, and a recent wave of completions has helped ease rent pressures in some markets.

Steve Pomeroy, an industry professor at McMaster University and researcher with the Canadian Housing Evidence Collaborative, says the industry’s recent growth complicates predictions of a sharp slowdown.

“There is reason to expect rental housing starts to slow — but not necessarily plummet,” Pomeroy told Money.ca.

Why rental developers are putting projects on hold

CMHC’s 2026 Canadian Rental Housing Development Survey found that 72% of respondents had paused or cancelled rental projects over the previous two to three years because of rising development costs. More than half had increased rents to maintain project viability, while others had extended timelines or reduced unit sizes.

Government regulations, fees and approval delays were among the reported barriers, alongside construction costs, high interest rates and unfavourable market conditions.

The pressure comes after a remarkable expansion in purpose-built rental construction. Pomeroy notes that rentals accounted for less than 10% of housing starts in previous decades, but represented about half of all homes started in centres with populations of 10,000 or more in 2025.

Pomeroy credits favourable financing through CMHC programs with helping developers pivot from condominiums to rentals as weak condo presales made projects harder to finance.

Developers with long-held land may also be better positioned to absorb elevated construction costs because their original land costs are lower.

Meanwhile, a wave of rental completions has increased competition in some markets, particularly at higher rent levels. Reduced population growth, including fewer international students and temporary foreign workers, has also softened demand.

Could today’s softer rents mean fewer homes later?

For renters, softer rents and more available units offer welcome relief. But if developers delay or cancel projects in response, the effects could be felt years later, when demand strengthens again.

“Purpose-built rental construction has been at historically elevated levels, however, the supply entering the market today reflects investment and development decisions made years ago,” Tania Bourassa-Ochoa, CMHC’s deputy chief economist, told Money.ca.

She also warned that slower construction could leave Canada short of homes when population growth, household formation and incomes pick up.

“The key risk now is Canada underbuilds during this softer demand period and finds itself further short of housing when demand strengthens again,” Bourassa-Ochoa said. “This would put recent affordability gains in Canada’s rental markets at risk.”