A rapid increase in the supply of rental housing is pushing down rents landlords advertise in some major Canadian cities, according to the

Canada Mortgage and Housing Corporation (CMHC).

Asking rents have declined between two to eight per cent in Calgary, Toronto, Vancouver and Halifax from a year ago, the

CMHC said

in its mid-year

rental market report

Tuesday.

The average advertised rents in cities such as Edmonton, Ottawa and Montreal, however, continue to rise, although at a slower pace.

“Landlords are reporting that vacant units are taking longer to lease,” the CMHC said in the report. This is especially true in the case of new purpose-built rental units in Toronto, Vancouver and Calgary, due to additional competition from well-supplied secondary rental markets, it said.

CMHC deputy chief economist Tania Bourassa-Ochoa said asking rent has been declining since last fall as record levels of new supply have been built and demand weakens from a slower job market and population growth.

The secondary rental market often has lower rents as owners try to avoid vacancies, placing less emphasis on capitalization rates.

Bourassa-Ochoa said the rental condos are generally owned by smaller investors who don’t have a lot of flexibility and are eager to rent our their units.

Purpose-built rental operators, on the other hand, prefer to offer incentives such as one month of free rent, moving allowances and signing bonuses to lure new tenants, rather than to offer lower rents.

CMHC said that nevertheless, some operators anticipate they may need to lower rents over the next couple of years.

It said its data show a continued increase in rental completions since its last survey in October. Completions remain above their 10-year historical averages in most markets, much of which has been encouraged by government initiatives, it said.

  • CMHC forecasts slowdown in housing starts through 2027
  • Homebuilding must nearly double over next decade to restore affordability, says CMHC

CMHC estimates the share of rental apartment starts supported by those initiatives during the construction phase grew significantly, from five per cent in 2017 to 88 per cent by 2024.

The impact of Canada’s slower

immigration policies

is also playing a role in the recent decline in advertised rents.

  • CMHC forecasts slowdown in housing starts through 2027
  • Homebuilding must nearly double over next decade to restore affordability, says CMHC

Despite easing rent growth and increasing supply, overall rental affordability isn’t improving, the CMHC said, especially in Vancouver and Toronto.

“There’s kind of this disconnect between all of that supply that is going in, but there’s persistent affordability challenges,” Bourassa-Ochoa said.

CMHC said turnover rents are still driving increases as landlords raise the rent for new tenants taking over existing units. Average rents, in turn, are still high, said Bourassa-Ochoa. Average rent in Canada would include occupied rentals, newer and older units, and turned over units.

“We’re seeing advertised rents are declining, but it’s not yet making its way into the pockets of tenants,” she said. “It takes time before rental housing will truly become affordable.”

• Email: dpaglinawan@postmedia.com

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.