Canada’s national housing conversation has long been dominated by a singular, pressing narrative: a severe shortage of available homes driving prices and rents to unprecedented heights. However, a comprehensive new report from real estate analytics firm CoStar reveals a striking and paradoxical twist in the country’s real estate landscape. While affordable rental housing remains virtually impossible to find, the upper tier of the rental market is grappling with a surprising glut of empty units, exposing a profound structural disconnect in what is being built versus what everyday Canadians can actually afford.
According to CoStar’s data, high-end rentals across Canada are experiencing a vacancy rate of nearly 17 per cent. This figure stands in stark contrast to the tighter, healthier vacancy rates of roughly three per cent observed in the more affordable segments of the rental market. CoStar, which evaluates properties using its own specialized rating system, reported that out of roughly 26,600 five-star luxury units nationwide, an alarming 4,500 are currently sitting vacant. This translates to an eye-watering vacancy rate of 16.9 per cent for the absolute top tier of the rental market.
The analytics firm distinguishes four- and five-star buildings from their standard counterparts through a combination of luxury markers, including high-quality interior finishes, extensive lifestyle amenity offerings, and architecturally significant, visually striking facades. When expanding the scope to include both four- and five-star properties combined, CoStar’s figures show that 25,500 units are vacant out of a total 222,190 across the country. This creates an overall upper-tier vacancy rate of 11.5 per cent.
By comparison, the divergence down the market ladder is sharp. Buildings categorized as three-star sit at a much more balanced vacancy rate of four per cent, while older or more modest one- and two-star buildings report a tight vacancy rate of just 2.7 per cent.
Two Distinct Narratives
Mario Lefebvre, CoStar’s chief economist for Canada, pointed out that these vastly differing vacancy rates illustrate two entirely separate narratives unfolding simultaneously within the Canadian rental ecosystem. On one side, renters chasing budget-friendly accommodations are stuck in a hyper-competitive market with virtually zero room to breathe. On the other side, luxury developers are staring down double-digit vacancies as high-end supply outpaces consumer demand.
Lefebvre places the primary blame for the oversupply of luxury rentals squarely on developers. Caught in a vise of escalating financial pressures, builders found themselves with little choice regarding the type of product they could economically bring to market. Construction costs, Lefebvre noted, surged dramatically during the COVID-19 pandemic and have continued an upward trajectory ever since, swelling by a staggering 60 to 70 per cent.
Concurrently, average household incomes have failed to keep pace with these compounding construction expenditures. This severe affordability gap has made it mathematically and logistically very difficult for developers to break ground on truly affordable housing projects while still recouping their initial investments.
“Developers started doing the math themselves and said, ‘I’m going to go to the higher end,’” Lefebvre explained. “The problem is, they built and they built, and now we wind up with double digits at the higher end in terms of vacancy.”
Faced with punishingly high overhead, developers banked on the strategy of incorporating premium materials, luxury finishings, and extensive resident amenities into their blueprints, enabling them to command higher monthly rents to offset construction costs. According to CoStar, the calculation seemed sound at the time, but the broader economic and market environment shifted dramatically from when these projects were initially conceived earlier in the decade.
Initial projections for rental demand were remarkably optimistic. However, the market has since cooled significantly due to a convergence of macroeconomic headwinds, including moderated immigration targets and broader strains on the Canadian economy, such as persistent inflation and the looming threat or impact of U.S. tariffs.
CoStar’s report indicates that tenant absorption rates simply could not keep pace with the massive wave of newly delivered high-end units. Consequently, luxury vacancy rates escalated sharply from roughly seven per cent in 2022 to the double-digit figures recorded today. Ultimately, the data suggests that when economists and housing advocates discuss a shortage of available homes in Canada, they are specifically referring to a shortage of affordable homes. In reality, a surplus of luxury rental inventory is sitting empty.
A Slow Return to Equilibrium
Looking ahead, Lefebvre suggests that the market will undergo a slow and deliberate return to equilibrium. This rebalancing act is expected to occur as rental prices gradually drift downward, making high-end inventory slightly more accessible to a broader segment of the population. Simultaneously, the frenetic pace of new construction has begun to slow down, giving organic market demand the necessary time to catch up with existing supply. Even with these adjustments, Lefebvre cautioned that it will take several years to fully absorb the current backlog of luxury units.
CoStar’s predictive models forecast a steady, incremental increase in tenant absorption beginning around the tail end of 2026. This recovery is anticipated to be driven by decreasing rental rates and tightening supply, potentially accelerated by landlord concessions such as promotional offers of a few months of free rent. Even with these corrective market forces at play, the report projects that the vacancy rate within Canada’s high-end rental segment will remain stubbornly above 10 per cent through the end of 2028.
Not Expensive by Design
While CoStar’s analytics highlight severe vacancies in the luxury bracket, other housing authorities frame the high-end rental market through a slightly different lens. The Canada Mortgage and Housing Corporation (CMHC) tracks high-end inventory differently and reports a significantly lower vacancy rate for the country’s most expensive rentals.
According to CMHC data released for October 2025, the vacancy rate for the highest quartile of rental properties in Canada—where the national average rent sits just above $1,950 a month—stood at 5.2 per cent. While this figure is noticeably lower than CoStar’s double-digit luxury metrics, it still represents a notable increase, sitting at nearly double the typical pre-pandemic vacancy rate for expensive rentals, which hovered at a tight 2.8 per cent in October 2019.
Tania Bourassa-Ochoa, deputy chief economist at the CMHC, explained that vacancies have trended upward for newer builds over the past few years primarily because an influx of recent construction has intensified competition among property managers and landlords for a finite pool of tenants.
Bourassa-Ochoa noted that while newer construction projects naturally command higher price points—often making them financially out of reach for a significant portion of the Canadian population—they are rarely expensive purely by design or as a deliberate strategy to target an exclusive luxury clientele. Instead, escalating development costs have forced builders to charge baseline prices that many everyday tenants simply cannot afford.
“The demand for rental housing has slowed down quite significantly,” Bourassa-Ochoa said, noting that the underlying need for housing has not vanished entirely. Rather, prospective renters are pausing, waiting patiently for more favorable economic conditions and the emergence of genuinely affordable housing options before making their next move.