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A sign advertising a house for rent in Ottawa, Ont., on May 16.Spencer Colby/The Globe and Mail

Just as Canada’s home sales and prices cool off, the rental market is catching fire.

Rents in many parts of the country are nearing or surging past prepandemic records, just as property values and home resale transactions declined for the second consecutive month in May, according to national data released on Wednesday.

The average asking rate on vacant units available on Rentals.ca, a rental listings site, reached $1,888 a month in May. That was up more than 10 per cent from a year ago and nearly 4 per cent from April, the steepest monthly increase since May, 2019, according to a monthly analysis of Rentals.ca listings compiled by Bullpen Research & Consulting Inc.

In Vancouver, which topped the Rentals.ca ranking of most expensive rental markets, the going rate for a two-bedroom unit in June is $3,495, up 24 per cent from the same month last year. In Toronto, renting a two-bedroom unit now costs around $3,000 a month, up more than 21 per cent from a year ago.

Across Canada, renters are now saving hundreds of dollars over owning

“It’s a dog-eat-dog world,” Shakira Spence, 24, an Aurora, Ont.-based strategic communications professional, said of her current experience looking for a rental in downtown Toronto.

Ms. Spence, who estimates she has put in around 10 offers since October, said she and her partner went so far as to offer $250 a month above the posted rent for a particularly attractive one-bedroom-plus-den condo apartment with a view of the CN Tower. But even that wasn’t enough: A competitor offered $500 a month more, according to Ms. Spence, who hired a rental agent to help with the search.

“It’s discouraging,” she said in a phone interview, adding that the prolonged housing hunt is forcing her to continue to live apart from her partner, who is currently based in Ottawa, and commute an hour-and-a-half each way into work despite sky-high gasoline costs.

Ms. Spence’s struggle reflects larger macroeconomic trends. While record-low unemployment continues to fuel demand for housing, as mortgage rates soar some of that demand is shifting from the ownership market to the rental market, said Shaun Hildebrand, president of Urbanation, a Toronto-based condo research group.

Those higher borrowing costs are shutting out of home ownership even high-earning individuals and households, who have significant financial firepower to bid up rental prices, Mr. Hildebrand noted.

Strong immigration, the transition from fully remote to hybrid work, as well as the return of housing demand from students following pandemic lockdowns are also fuelling competition for rentals, Mr. Hildebrand said.

Those pressures go well beyond Toronto and Vancouver. In Ontario, the average rental rate for condo or rental apartments in Kitchener and London was up around 25 per cent year-over-year in May, based on Rentals.ca listings. In Calgary, rents were up 20 per cent.

“In the single-family market, a property can rent overnight, where potentially in the past it would stay on market for 30-plus days,” said Lauretta Enders, a broker at Calgary-based Emerald Management & Realty Ltd.

Demand is coming not just from people who feel priced out of the resale market, but also many who see renting as a long-term solution because it’s more financially attractive than ownership, she said.

Even in the Greater Toronto Area, one of the country’s priciest rental markets, the affordability gap between renting and owning is widening.

In the first three months of 2022, average monthly expenses for new condo owners in the GTA were more than $500 higher than the average rent for a unit of the same size, Urbanation calculates. (For condo owners, the estimates are based on a 20 per cent down payment and 25-year amortization and include the mortgage payment, condo fees and property taxes.)

But while demand balloons, the supply of rental housing continues to fall short in many markets. In Ontario, for example, Urbanation estimates the projected gap between rental demand and new supply from purpose-built apartments and condo rentals will grow to approximately 236,000 units in the next 10 years. That’s even as the pace of new rental construction in the province has doubled over the past five years.

It doesn’t help that rising construction costs are leading some developers of purpose-built rentals to postpone or cancel some projects, said Benjamin Tal, deputy chief economist at CIBC Capital Markets.

Barring a hit to Canada’s economy and labour market, competition for rentals is poised to get even tougher, Mr. Hildebrand said.

“Things have gotten worse recently for renters,” he said. “I think they’re going to get even more so.”

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