Q4 Real Insights | From condos to rentals: Canada's housing market transformation in 2025

Explore Canada’s evolving housing landscape in Q4 2025, driven by $12 billion in federal funding for innovative housing infrastructure, a surge in purpose-built rentals, and the resurgence of co-operative housing models. Stay informed with key insights into rental growth, investment opportunities, and policy changes shaping the future of Canadian real estate.

Dive into the highlights with our video snapshot or get the full story below.

Economics

With passage of the fall federal budget, $12 billion has been allocated over 10 years to enable new housing infrastructure. This includes an increased focus on prefabricated and modular housing and innovative construction methods that will hopefully reduce both construction timelines and costs as well as address labour shortages. The major infrastructure projects contained in the budget will most likely exacerbate construction labour shortages. The Liberal campaign promise to reduce development charges by 50% did not materialize in Budget 2025 and was replaced by language indicating they would be “substantially reduced.”

Similarly, the Build Canada Homes program, designed to encourage building affordable homes on under-utilized land, has been scaled back from $11.8 billion to $6.2 billion over four years.

CMHC’s Apartment Loan Construction Program was allocated an additional $15 billion in 2025 for a total of $55 billion, with loans ranging from $1 million to the total cost of the residential components of both new builds and adaptive reuse. Affordable housing continues to be defined in various ways, and this CMHC program defines it as “30% of the median total income of all families in the subject market,” with 20% of units designated affordable and maintained as such for 10 years.

The Bank of Canada has reduced interest rates four times in 2025 to 2.25%, and it is unlikely we will see further reductions in the near future, especially since the latest available inflation figures for October 2025 were 2.2%.

Canadian GDP forecasts range from 1-1.2% for 2025 due to continuing U.S. tariff uncertainties as we continue the process of diversifying our export markets.

Investment Activity

Pension funds and REITs are increasingly investing in purpose-built rentals as an asset class that is considered both stable and defensive. There is continued strong demand for rental housing. High construction costs are now mostly due to labour rather than materials costs that reached peak levels during the pandemic. A 2025 CMHC report advocated for REITs as part of the solution to rental housing undersupply. The report found that REIT rents were between 2-5% higher in Toronto and Vancouver than in buildings owned by other landlords, and 25% higher in Montreal, while pointing out that REIT-owned buildings tend to be in rapidly gentrifying neighbourhoods and that 82% of REIT-owned buildings in Montreal included utilities in asking rent, while only 20% of non-REIT-owned units do. This accounts for 13.8% of the rent variance.

In 2024, CAPREIT, Canada’s largest residential REIT, sold five of its non-core properties consisting of 400 units to community housing authorities. This year it has continued to employ its portfolio strategy of divesting older buildings with high operating costs and low cash flows, while purchasing upscale buildings in Metro Vancouver, Regina, London, and Montreal. These older assets are being snapped up by private investors as they offer stability due to higher occupancy levels from long-term tenants remaining in affordable units.

Investor interest in both Class A and B seniors’ housing assets remains strong, although there is far less transaction activity for the Class B segment, due to bid-ask spreads remaining elevated, since they are so highly dependent on in-place net operating income.

Year-over-year, national average high rise cap rates were up 5 basis points for Class A and 2 basis points for Class B at the end of third quarter 2025. Low rise Class A yields saw no change, while Class B low rise cap rates decreased 12 basis points year-over-year.

Key Trends

Purpose-built rental construction increased more than 25% in the first half of 2025. This sector is likely to continue to see growth as a result of municipal, provincial, and federal incentives to boost rental housing supply, especially in municipalities willing to offer tax credits and lower or waive development fees. Rent growth has been slowing since 2023’s 8% high for two-bedroom units, to 5.4% in 2024. It is forecast to decrease to 3-4% in 2025. By second quarter 2025, 65% of Toronto new builds were offering incentives, including two or more months’ free rent, move-in bonuses, and reduced amenity fees for lockers and parking. As the federal government continues to lower immigration targets and drastically reduce the number of international students, demand is decreasing except for mid-market and larger, family-sized purpose-built rental units.

In Toronto and Vancouver, the condo market has tanked. A recent Urbanization report indicates 61 Toronto condo applications for 27,000 units have pivoted to purpose-built rentals, while an additional 1,800 units converted to rentals after the unit sales process began. Investors are losing interest in Vancouver condos as prices continue to fall, while those hoping to get onto the property ladder find new builds over-priced and not large enough. Condo sales have declined 75% in Toronto and 37% in Vancouver between 2022 and first quarter 2025. Condo investors are looking at both higher carrying costs and lower rental rates, and those who made pre-construction purchases in 2024 are now seeing up to 6% capital losses, according to CMHC.

In Metro Toronto, 65% of all new rental housing starts from January to August 2025 were city-led or city-supported, including fast-track approvals, funding, tax exemptions, and land. This support requires guarantees that developers will meet affordable housing requirements established by the city. Co-operative housing models are experiencing a resurgence after 30 years. By early November, almost 5,000 rent-controlled homes were at the building-permit stage.

Construction-specific AI solutions to increase productivity are being offered by companies like Explore, Augments, and Mercator. These solutions are primarily being adopted by larger firms with the ability to invest in tech solutions. AI construction technology not only includes design capabilities, but is also beginning to advance in areas such as bricklaying and welding.