Canada’s rental housing landscape is experiencing a profound divergence, revealing two distinct narratives unfolding simultaneously across the country. While everyday renters continue to face a severe crunch for affordable options, a new report highlights that high-end and luxury rentals are sitting empty at unprecedented rates.
According to data compiled by real estate analytics firm CoStar, high-end rental properties in Canada are currently grappling with a vacancy rate of nearly 17 percent. This figure stands in stark contrast to the much tighter conditions found in the affordable housing segment, where vacancy rates hover close to three percent.
The stark disparity underscores a broader structural shift in the Canadian housing market, driven by shifting economic conditions, soaring construction costs, and a mismatch between what developers have been forced to build and what everyday tenants can actually afford to pay.
Breaking Down the Numbers: Luxury Vacancies Soar
CoStar evaluates rental inventory using its own proprietary rating system, classifying properties based on architectural significance, facade design, amenity offerings, and the quality of interior finishes. Within this framework, four- and five-star buildings represent the upper echelon of the rental market.
Out of 26,600 units categorized as top-tier five-star properties across Canada, an estimated 4,500 are currently unoccupied. This translates to an eye-opening vacancy rate of 16.9 percent. When expanding the scope to include four-star buildings—which share many of the same high-end characteristics—the numbers remain similarly elevated. CoStar reports that out of 222,190 total four- and five-star units nationwide, 25,500 are sitting empty, resulting in an overall vacancy rate of 11.5 percent for this combined luxury segment.
These figures contrast sharply with mid-tier and lower-end properties. Buildings classified as three-star feature a healthier vacancy rate of four percent, while one- and two-star buildings—traditionally the most affordable options in the rental ecosystem—boast an extremely tight vacancy rate of just 2.7 percent.
Two Distinct Narratives
Mario Lefebvre, CoStar’s chief economist for Canada, noted in an interview with Real Estate Magazine that these vastly differing vacancy rates illustrate two entirely separate narratives taking place within the Canadian rental market.
Lefebvre places the primary responsibility for the glut of luxury vacancies squarely on the shoulders of developers. Faced with unrelenting economic pressures, builders have increasingly focused their efforts on high-end stock rather than affordable housing.
According to Lefebvre, construction costs skyrocketed dramatically during the COVID-19 pandemic and have continued an upward trajectory ever since, surging by an estimated 60 to 70 percent. Over the same period, general household incomes have failed to keep pace with these inflated development expenses. This widening gap has made it economically unviable for developers to construct lower-cost housing while still managing to recoup their mounting capital outlays.
“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.”
To offset soaring construction expenses, developers calculated that they could introduce premium materials, upscale finishes, and luxury amenities, allowing them to charge higher rents. However, the macroeconomic environment when these projects were initially greenlit earlier in the decade looks drastically different from the current reality. Initial market projections were marked by high optimism, but subsequent economic headwinds—including slowing immigration, broader economic strains, persistent inflation, and the lingering threat of U.S. tariffs—have cooled demand significantly.
CoStar’s report emphasizes that tenant absorption rates simply could not keep pace with the massive influx of newly delivered luxury units. As a result, vacancy rates in the high-end segment have climbed steadily from approximately seven percent in 2022 to the double-digit figures seen today. Industry analysts point out that when public discussions center around a severe shortage of available homes in Canada, the conversation is fundamentally about a shortage of affordable housing, given that an abundance of luxury inventory is currently sitting vacant.
A Slow Return to Equilibrium
Looking ahead, Lefebvre suggests that the market will gradually find its way back to equilibrium, though the correction will take time. As rents begin to adjust downward, high-end stock will likely become slightly more accessible to a broader segment of the population. Simultaneously, the overall pace of new construction has begun to slow, which will eventually allow current housing demand to catch up with the existing supply pipeline. Even with these market corrections, Lefebvre cautions that working through the current surplus of luxury units will take several years.
CoStar’s projections forecast a steady increase in absorption beginning late in 2026, driven by declining rents and tightening supply, potentially aided by landlord-offered concessions such as a few months of free rent. Nevertheless, the report anticipates that vacancy rates within the high-end rental segment will remain comfortably above 10 percent through the end of 2028.
Alternative Perspectives on Rental Costs
While CoStar’s metrics highlight pronounced weakness in the luxury segment, other housing authorities report different baseline figures, though the overarching trend of rising vacancies in newer builds remains consistent.
The Canada Mortgage and Housing Corporation (CMHC) calculates vacancy rates for high-end properties differently, placing the figure much lower than CoStar. According to CMHC data released in October 2025, the vacancy rate for the highest quartile of rental properties in Canada stood at 5.2 percent. At that time, the national average rent across all segments sat just above $1,950 per month.
Despite being lower than CoStar’s estimates, CMHC’s reported 5.2 percent vacancy rate for expensive rentals is nearly double the typical pre-pandemic baseline, when vacancy for top-tier units hovered at 2.8 percent in October 2019.
Tania Bourassa-Ochoa, deputy chief economist at CMHC, noted that vacancies have climbed notably across newer construction projects over the past few years, largely because a wave of recent completions has intensified competition among landlords for prospective tenants.
Bourassa-Ochoa points out that newer developments naturally skew more expensive simply due to the timing of their financing and construction, often making them financially out of reach for a significant portion of Canadians. However, she stresses that these units are not necessarily expensive by design—developers are not intentionally targeting a niche luxury clientele out of preference. Rather, escalating construction expenses have forced builders to charge rental rates that many households simply cannot afford.
“The demand for rental housing has slowed down quite significantly,” Bourassa-Ochoa said. “That demand has not disappeared, it’s just waiting for better conditions and more affordable options.”