Canada’s rental housing market is telling a tale of two entirely different realities. While prospective tenants continue to face severe shortages and fiercely competitive conditions for budget-friendly properties, the country’s high-end rental segment is experiencing a surprising glut of unoccupied units.
According to a comprehensive new report from real estate analytics firm CoStar, high-end rentals across Canada are currently sitting at a vacancy rate of nearly 17 percent. This figure stands in stark contrast to the much tighter vacancy rates seen in more affordable housing brackets, which hover close to three percent.
CoStar, which categorizes rental properties using its own detailed rating system, reports that out of 26,600 classified five-star units nationwide, a staggering 4,500 are currently vacant. This translates to a vacancy rate of 16.9 percent for the absolute highest tier of luxury rentals.
The analytics firm defines four- and five-star buildings by distinct architectural and qualitative markers, separating them from standard stock through high-quality interior finishes, extensive amenity offerings, and attractive, architecturally significant facades. When looking at the broader luxury and premium tier—combining both four- and five-star properties—CoStar’s data shows that 25,500 units are vacant out of a total 222,190 units across Canada, resulting in an overall vacancy rate of 11.5 percent for this combined category.
By comparison, the market tightens significantly as the star ratings decrease. Three-star buildings report a much healthier vacancy rate of four percent, while one- and two-star buildings record a tight 2.7 percent vacancy rate, underscoring the relentless demand for basic, economical shelter.
Two Distinct Narratives
Mario Lefebvre, CoStar’s chief economist for Canada, recently discussed these wide disparities with Real Estate Magazine, emphasizing that the contrasting vacancy rates point to two entirely separate narratives unfolding simultaneously within the Canadian rental landscape—one for higher-end accommodations and another for lower-end options.
Lefebvre places the primary responsibility for the rising vacancies in luxury rentals squarely on the shoulders of developers. According to his analysis, builders have delivered an overabundance of high-end stock largely driven by escalating construction costs.
Construction expenses surged dramatically during the COVID-19 pandemic and have continued an upward trajectory ever since, with cost increases reaching as high as 60 to 70 percent compared to pre-pandemic baselines. Because general incomes have failed to rise at a commensurate pace, developers have found it exceptionally difficult to build genuinely affordable housing while still managing to recoup their skyrocketing building expenses.
Faced with these economic realities, developers recalculated their project models. Lefebvre noted that developers essentially looked at the math, realized traditional affordable builds were financially unviable under the circumstances, and deliberately shifted their focus toward the higher end of the market.
To offset elevated material and labor expenditures, developers invested in luxury finishes and premium amenities, banking on higher rental yields. However, the market conditions when these projects were initially conceived earlier in the decade proved to be vastly different from the economic environment developers faced upon completion. Initial project projections were drafted during a period of intense optimism, but the broader market has since decelerated due to a combination of cooling immigration numbers and broader economic pressures, including stubborn inflation and the looming threat of U.S. tariffs.
CoStar’s report highlights that the pace of tenant absorption failed to keep up with the massive influx of newly delivered high-end units. Consequently, the national vacancy rate for luxury stock jumped sharply from roughly seven percent in 2022 to the double-digit figures recorded today. Industry analysts point out that this dynamic fundamentally reframes public discussions surrounding the housing crisis: when people speak of an acute shortage of available homes in Canada, they are primarily describing a severe shortage of affordable housing, as there is actually an abundance of high-end luxury units sitting empty.
A Slow Return to Equilibrium
Looking ahead, Lefebvre suggests that the market will eventually experience a slow and steady return to equilibrium. This rebalancing is expected to happen as market pressures force a gradual decrease in luxury rents, making higher-end units slightly more accessible to a broader pool of renters. Furthermore, the pace of new construction starts has already slowed down significantly, which will naturally grant underlying demand the necessary time to catch up with the existing oversupply of luxury inventory.
Even with these shifting dynamics, Lefebvre cautions that it will take several years for the market to completely work through the current backlog of luxury units.
CoStar’s predictive modeling forecasts a steady increase in tenant absorption beginning around the end of 2026. This recovery is expected to be spurred by declining rents, tightening supply, and an increase in landlord concessions—such as promotional offerings of a few months of free rent—designed to entice hesitant renters. Even with these expected adjustments, however, the report projects that vacancy rates in the high-end luxury segment will likely remain stubbornly above 10 percent through the end of 2028.
Not Expensive by Design
While CoStar’s metrics paint a striking picture of the luxury tier, other housing authorities track the upper end of the market through slightly different methodologies. The Canada Mortgage and Housing Corporation (CMHC), for instance, estimates vacancy rates for higher-cost rentals to be lower than CoStar’s figures, though still elevated relative to historical norms.
According to CMHC data released in October 2025, the vacancy rate for the highest rental price quartile in Canada sat at 5.2 percent. During that same assessment period, the national average rent across all units stood at a little over $1,950 per month.
While a 5.2 percent vacancy rate is notably lower than CoStar’s 11.5 percent to nearly 17 percent figures for top-tier properties, it still represents a significant shift from historical baselines. That rate is nearly double the typical pre-pandemic vacancy rate for expensive rentals, which stood at a tight 2.8 percent in October 2019.
Tania Bourassa-Ochoa, deputy chief economist at CMHC, explained to Real Estate Magazine that vacancies have trended notably higher for newly constructed buildings over the past few years. She attributes this trend to the sheer volume of recent construction, which has temporarily heightened competition among landlords for a limited pool of qualified tenants.
Bourassa-Ochoa also noted that newly constructed buildings naturally command higher price points, often making them financially out of reach for a significant portion of the Canadian population. Crucially, however, she emphasizes that these units are not necessarily expensive by design—meaning developers are not always intentionally building exclusively for an ultra-wealthy elite. Rather, surging development costs have simply forced builders to price units at levels that many average Canadians cannot afford.
The broader slowdown in the rental market reflects changing consumer behavior amid economic uncertainty. As Bourassa-Ochoa points out, overall demand for rental housing has moderated quite significantly across the board, with many prospective renters pausing their moving plans while they wait for macroeconomic conditions to stabilize and more genuinely affordable options to materialize.