Canada’s housing crisis is frequently framed as a singular, unrelenting shortage of available homes across the board. However, a comprehensive new report reveals a much more nuanced and divided reality within the country’s rental market, highlighting a stark disconnect between high-end luxury developments and desperately needed affordable housing.
According to recent data from real estate analytics firm CoStar, high-end rentals in Canada are experiencing a surprisingly high vacancy rate of nearly 17 per cent. This figure stands in sharp contrast to the much tighter conditions found at the lower end of the market, where affordable rentals maintain a vacancy rate close to three per cent.
CoStar, which categorizes rental properties using its own granular rating system, breaks down the upper tiers of the market by architectural significance, quality of finishes, and amenity offerings. The firm reports that out of 26,600 classified five-star units across the country, a striking 4,500 are sitting empty, translating to a vacancy rate of 16.9 per cent.
When looking at combined four- and five-star properties—buildings that set themselves apart through high-end construction, premium fixtures, and expansive lifestyle amenities—the numbers remain similarly elevated. Out of a total of 222,190 units across Canada in these top two tiers, 25,500 are currently vacant, yielding a vacancy rate of 11.5 per cent.
This environment contrasts sharply with the remainder of the rental stock. CoStar’s data shows that three-star buildings maintain a much healthier vacancy rate of four per cent, while one- and two-star buildings record a tight 2.7 per cent vacancy rate, underscoring the relentless demand for more economical housing options.
Two Distinct Narratives
Mario Lefebvre, CoStar’s chief economist for Canada, recently pointed out that these vastly differing vacancy rates illustrate two distinct narratives unfolding simultaneously within the Canadian rental landscape—one defined by an oversupply of luxury units, and the other by a severe deficit of affordable homes.
Lefebvre places the primary responsibility for the glut of vacant luxury units squarely on developers who built heavily within that segment. This trend was largely driven by soaring construction costs that began climbing dramatically during the COVID-19 pandemic and have continued to rise since, registering increases of as much as 60 to 70 per cent. Because average household incomes failed to keep pace with these escalating expenses, developers faced immense financial barriers when attempting to build conventional, affordable housing while still managing to recoup their investments.
Faced with these economic realities, developers engaged in their own financial calculations, ultimately pivoting toward the luxury market. Lefebvre noted that developers reasoned they could recover their massive construction outlays by incorporating high-end materials, premium appliances, and extensive recreational amenities, subsequently charging higher monthly rents to offset the costs.
However, the broader market conditions when these projects were initiated earlier in the decade proved drastically different from the current economic climate. Initial financial projections were built on highly optimistic assumptions. Since then, the market has cooled significantly due to a convergence of economic headwinds, including shifting immigration levels, broader economic strains in Canada, domestic inflation, and external pressures such as potential U.S. tariffs.
CoStar’s findings indicate that tenant absorption simply failed to keep pace with the massive wave of newly delivered high-end developments. As a result, the national vacancy rate for luxury units jumped from roughly seven per cent in 2022 to the double-digit figures seen today. Industry analysts emphasize that when public discussions focus on a generalized shortage of housing, the data suggests the problem is specifically a shortage of affordable units, as an abundance of luxury accommodations remains readily available.
A Slow Return to Equilibrium
Looking ahead, Lefebvre suggests that the market will experience a gradual return to equilibrium. This rebalancing is expected to occur as rental prices begin to soften, making the upper-tier stock incrementally more accessible to a broader pool of renters. Simultaneously, the overall pace of new construction has slowed down, giving organic demand time to catch up with the existing supply pipeline. Even with these adjustments, Lefebvre warns that it will take several years to fully absorb the current surplus of high-end units.
CoStar’s report forecasts a steady increase in tenant absorption beginning late in 2026. This recovery is anticipated as rental rates decrease and inventory tightens, potentially aided by landlord concessions such as offering a few months of free rent to attract occupants. Nevertheless, the firm projects that the vacancy rate within the high-end rental segment will likely remain above 10 per cent through the end of 2028.
Not Expensive by Design
While CoStar’s figures illustrate a pronounced oversupply at the absolute highest tier of the market, Canada Mortgage and Housing Corporation (CMHC) data offers a slightly different lens on the broader category of expensive rentals, though it confirms the underlying trend of rising vacancies in newer inventory.
CMHC reported a vacancy rate of 5.2 per cent for the highest quartile of rental properties in Canada as of October 2025. At that time, the national average rent across all segments sat at a little over $1,950 a month. While a 5.2 per cent vacancy rate indicates more breathing room than the tight conditions of recent years, it remains nearly double the pre-pandemic vacancy rate of 2.8 per cent recorded for high-cost rentals in October 2019.
Tania Bourassa-Ochoa, CMHC’s deputy chief economist, explained that vacancies have trended notably higher for newly constructed buildings over the past few years. This shift is primarily the result of recent construction waves increasing direct competition among landlords for prospective tenants.
Bourassa-Ochoa noted that newly built units are inherently more expensive, often to the point of being financially out of reach for a significant portion of the Canadian population. However, she stressed that these properties are rarely expensive by design—meaning developers are not intentionally catering exclusively to an elite luxury market for the sake of exclusivity. Instead, surging development costs have forced builders to charge prices that many average households simply cannot afford.
The demand for rental housing has moderated quite significantly compared to the frantic pace seen during the peak of the post-pandemic migration and economic rebound. According to Bourassa-Ochoa, that underlying demand has not vanished entirely; rather, a substantial portion of the renter population is currently sidelined, waiting for more favorable economic conditions and the emergence of genuinely affordable housing options.