Canada’s Housing Market Outlook: How Interest Rates and Population Shifts Are Reshaping Demand

Canada’s housing market is being pulled in different directions by interest rates, affordability pressures, and shifting population dynamics. New analysis from Edge Realty Analytics, in an August report, highlights how these broader forces are likely to shape both housing demand and supply.

Interest Rates and Affordability

The Bank of Canada’s policy path remains a central influence on housing. Market expectations call for an additional rate cut this cycle, as economic conditions evolve.

For buyers, affordability is still a constraint. Housing-related expenses as a share of disposable income remain elevated. At the same time, recent wage growth has stalled, and household savings rates show signs of slipping, so affordability pressures may persist even if borrowing costs ease.

Supply Pipeline

On the supply side, construction trends show clear distinctions. Purpose-built rental starts have reached record highs, with over 100,000 units started in the past year and and three consecutive months with rental starts above 10,000; new condo starts have slowed sharply, pointing to reduced supply in the years ahead.

This divergence suggests that rental availability may continue to expand in the near term, while ownership-oriented supply looks set to tighten later in the decade. For investors, the implication is that opportunities may vary depending on market segment and investment horizon.

Population Growth Trends Shifting Demand Patterns

Population growth remains a defining factor in housing demand. Canada’s overall population growth is moderating, largely due to a smaller inflow of non-permanent residents (NPRs). Federal policy aims to reduce the NPR share of the population from over 7% to 5% by the end of 2026, a change that primarily affects the rental market since temporary residents tend to rent rather than buy.

Importantly, the Edge Realty analysis noted how population data has become a source of confusion, particularly when it comes to how permanent residents (PRs) and non-permanent residents (NPRs) are counted. Some estimates may understate or overstate the number of temporary residents in the country, depending on how arrivals and exits are tracked. This can affect not only housing demand forecasts but also labour market statistics, which are often tied to population estimates.

Government allocations often grant PR status to people already living in Canada on temporary visas, which means that many of the “new” PRs reported in headlines are not actually new arrivals. This can give the impression of stronger immigration inflows than are occurring in reality. At the same time, the volatility in overall population growth is largely driven by the NPR cohort, which surged after the pandemic but is now being reduced. Real-time indicators, such as mobile phone account growth, support this slowdown, showing a 54% year-over-year decline in Q2 and suggesting annual growth has fallen below 400,000 for the first time since 2016 outside the pandemic years. With more rental units being built and slower NPR growth, vacancy rates are expected to rise and rent growth to remain subdued. 

At the same time, the number of new permanent residents is being reshaped by reallocations to people already in Canada, limiting their immediate effect on overall growth. Over time, PR admissions may still support ownership demand, but less directly than headline figures suggest. For investors, the balance between softer rental demand and steady long-term ownership demand is an important consideration.

Outlook for Investors

Taken together, the macroeconomic and demographic environment points to a housing market in transition. Affordability remains tight. Rental supply is expanding at the same time temporary resident inflows are slowing, while ownership housing faces a future of constrained new supply and potentially ownership demand supported over time by permanent resident admissions. For investors, this can create an environment where near-term dynamics may differ from long-term fundamentals.