From Boom to Balance: Ontario’s Rental Market Transformation in 2025

The Ontario rental market in 2025 is experiencing a significant shift, with Toronto at the forefront of an unexpected decline in rental prices. This isn’t a minor fluctuation, but rather a substantial change that has been developing since 2016. This market evolution stems from a complex interplay of factors, including increased housing supply, changing economic conditions, and shifts in population dynamics

The Context: High-Rise Rental Developments Since 2016

High-rise rental construction began rising rapidly in 2016, driven by a robust economy, increased urbanization, and a growing preference for smaller condominiums, particularly those under 600 square feet. Investors capitalized on this trend, buying properties during pre-construction phases with the expectation of substantial return on investments. According to the City of Toronto planning department, there were 28 high-rise development applications submitted in the first six months of 2016, indicating a dramatic surge in construction activity (Source: Toronto.ca).

Factors Behind the Decline in Rental Prices

Economic and market dynamics have contributed to the recent decrease in rental prices across many Canadian cities.

1. Increased Construction and Rising Costs

Following 2016, construction costs escalated due to rising material prices and labor shortages. Developers often passed these increased costs onto consumers, leading to higher prices for newly built condominiums. The huge spike in condo prices became particularly noticeable between 2016 and 2017. In Toronto, the average condo price jumped from $446,294 in 2016 to $554,069 in 2017, a profound increase of over 24% in just one year. This trend continued, with the average condo price in Toronto reaching $636,817 by 2020, demonstrating a sustained period of rapid price growth in the condo market (source: Pierre Carapetian).

As these prices rose, the gap between renting and buying narrowed, making high-rise rentals less appealing to potential tenants. Consequently, many prospective renters began seeking more affordable housing options outside the traditional high-rise market.

2. Interest Rates

The steady rise in interest rates has also played a fundamental role in the decline of rental prices. As interest rates climbed, reaching a peak of 5% in 2022, it became more expensive for potential homebuyers to secure mortgages, leading many to remain in the rental market longer than anticipated. This initial surge in rental demand put upward pressure on prices. However, as the market adjusted and new housing supply became available, the dynamics began to shift. By late 2024, the Bank of Canada started implementing rate cuts, with the benchmark rate dropping to 3.75% (Source: CMHC). This decrease in borrowing costs, combined with an increase in housing supply began to ease pressure on the rental market. In Ontario, rental prices experienced a 6.4% year-over-year decline by early 2025 (Source: CBC News). The trend of declining rents is expected to continue into 2025, as lower interest rates encourage more renters to transition into homeownership, potentially reducing demand in the rental market and contributing to further price moderation.

Oversupply of Rental Units

The completion of numerous high-rise buildings throughout 2024 led to an oversupply of rental units. Condo completions reached a record high, with 23,473 units registered (completed and reaching final closing) in 2024, marking a 132% increase over the previous year. The number of condo apartments listed for rent rose by 46.6% in Q3 2024 compared to Q3 2023 (source: Trebb). This increased supply has exerted downward pressure on rental prices prompting landlords to adjust their pricing strategies, with some reducing rents by $200 to $400 per unit in Toronto to attract tenants (source: CMHC).

This trend breaks the prolonged cycle of steadily increasing rental prices, offering renters more affordable options in the short term. However, the long-term impact of this market shift remains uncertain as supply and demand dynamics continue to evolve.

Changes in Demand Influenced by Immigration Policies and Unemployment

The Canadian government’s recent policy to cap international student permits at 437,000 for 2025, a 10% decrease from 2024, is expected impact the rental market. This reduction builds on the 2024 initiative to cut international student numbers by 40% (Source: Canda.ca). While the cap aims to ease pressure on housing and public services, its immediate effect on rental demand may be limited. The effect will vary regionally, with Ontario and British Columbia likely to see the most substantial impact due to their higher proportion of international students. However, experts caution it could take several years for this policy to meaningfully slow rental housing demand.

Economic conditions continue to influence Ontario’s rental market. The softening labour market has particularly affected younger renters (aged 15-24), making it harder for them to form independent households. Youth unemployment reaching 14.4% in December 2024, far above the national unemployment rate of 6.7% (Source: Statistics Canada). This financial strain is likely to increase demand for shared accommodations or force young adults to delay moving out of their family homes.

What Lies Ahead for Rental Prices?

Government Policy Changes

Future government actions related to immigration and housing regulations are likely to influence rental trends. Adjustments to policies on international student enrolments or increased permits could alleviate current demand issues or exacerbate them.

Market Adjustments Over Time

Market shifts often take time to materialize. While trends suggest a decrease in rental prices, factors such as a sudden change in economic conditions or demographic patterns might accelerate a rebound.

Looking Ahead

The recent decline in rental prices for high-rise buildings across major Canadian cities reflects a combination of economic shifts, housing policies, and market saturation. The growing preference for compact urban living, which drove rapid condo development in the past decade, has now given way to a market correction due to rising interest rates, an oversupply of rental units, and evolving immigration and labor policies.

Moving forward, developers are likely to reassess investment strategies, focusing on affordability and diversified housing options to match shifting demand. Renters, on the other hand, could benefit from increased negotiating power in the short term, particularly in oversupplied markets like Toronto. Policymakers must also play a crucial role by balancing housing supply with regulatory measures that ensure long-term stability.

To create a more stable and affordable rental market in Canada, policymakers and stakeholders need to balance affordability concerns, economic realities, and smart city planning.