A sharp drop in temporary residents is reshaping Canada's rental and condo landscape
Canada's rental market is undergoing a structural reset, and the implications for mortgage professionals are playing out in real time.
A new analysis by BMO Economics lays out the mechanics of a striking reversal: after years of population-driven demand outstripping supply, a deliberate pullback in non-permanent residents is accomplishing what years of supply-side policy could not.
Net outflows of non-permanent residents topped 460,000 over the past year, according to BMO Economics, while permanent immigration remained solid at above 313,000.
Ottawa is targeting a reduction in the non-permanent resident share of the population, from a peak of 7.6% to 5%, signalling further outflows ahead. Those temporary foreign workers and international students had previously absorbed significant rental supply across the country.
Rental supply flood
The timing could hardly be more consequential. That demand pullback has arrived precisely as Canada's construction pipeline reaches a record depth.
More than 180,000 rental units are currently under construction nationally, according to BMO Economics, and for the first time, rental units under construction now outnumber combined condo and homeownership units.
The surge reflects previously tight conditions that set projects in motion years ago, alongside federal financing incentives for purpose-built construction.
The effect on rents has been immediate. National asking rents hit a three-year low in May, falling 4.7% year over year, said BMO Economics. Within the Consumer Price Index, rent inflation has eased to 3.5% annually from a high of 9.0% reached in 2024.
Canada is now experiencing "net disinflationary pressure from the sharp decline in population growth," BMO Economics said.
Investors and condos feel the squeeze
For mortgage brokers, the strain is sharpest in the investor-owned condo segment. BMO Economics said "presale activity in some major cities is scraping recession levels," a trend the bank warns will ultimately drive further declines in residential construction.
Cap rates, the bank added, no longer provide investors adequate cushion relative to risk-free yields to compensate for declining rents, tenant risk, and absent price growth expectations.
The dynamics are "toughest in B.C. and Southern Ontario," said BMO Economics, where rental and condo construction has been strongest and where non-permanent resident caps are biting hardest.
Smaller bachelor and one-bedroom units are most oversupplied; larger units are holding up comparatively better.
Micky Khaneka, a broker at DLC Clear Trust, has previously told Canadian Mortgage Professional the arithmetic simply does not work for investors.
"The rates, at this point, still don't make sense when you add in the monthly mortgage payment or property tax and throw in the maintenance fees," Khaneka said. "It's just not an attractive product."
Dan Eisner, founder and chief executive of True North Mortgage, has connected the condo sector's struggle directly to immigration policy.
"I don't see a bottom yet," Eisner previously said.
"If the Canadian government came out and said, 'We're increasing immigration back to the levels seen under [former Prime Minister] Trudeau,' then I would say, 'OK, we're going to see a bottom. But I don't see that.'"
BMO Economics stops short of labelling the demographic correction a clear negative, describing it as a likely necessary step to address the excesses of recent years.
A large share of condos currently under construction is investor-owned, which will add further rental supply over the year ahead — while improved resale affordability could also pull some renters back toward homeownership, eroding investor returns further.
What the country ultimately needs, the bank concluded, is "a more stable, predictable and sustainable immigration policy," a condition that would benefit the broader economy and the mortgage market alike.
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