Federal Affordable Housing Push Could Shift Rental Market

Canada’s rental market has shown significant improvement over the past year, thanks to an influx of supply that has kept pace with enormous demand.

According to the monthly Rentals.ca Rent Report, the national average rent is down 3.3 per cent from a year ago to $2,129. Even in major urban centres, such as Toronto and Vancouver, rental costs are decreasing.

Ottawa is still dissatisfied. With the country facing ongoing challenges to housing affordability, the federal government has bolstered its financial toolkit to address rental housing shortages nationwide. The federal government has increased low-cost funding and implemented legislative changes targeting both construction costs and investor behaviour.

These measures could potentially reshape the rental market in high-demand cities such as Toronto.

Policy Actions

An example of this was in March 2025 when the federal government announced an injection of up to $2.55 billion in low-interest loans through the Apartment Construction Loan Program (ACLP).

CMHC will administer this loan and will support approximately 4,800 rental units in Toronto, including 1000 designated affordable housing units. Construction is expected to begin by the end of 2026. This measure is part of Canada’s National Housing Strategy, initially launched in 2017 and updated in April 2024.

The federal government has committed more than $82 billion to increase supply and improve affordability.

Experts say that these efforts by the federal government could lead to a shift in the rental market. Toronto is Canada’s most populous city and a centre of housing demand. Despite slight rent cooldowns in late 2024, prices remain highly elevated.

But it is not only Ottawa that is trying to lower rental costs in North America’s fourth-largest city. The city of Toronto will offer $235 million in financial incentives to encourage developers to expedite their construction. These include reductions in fees, property tax relief, and waivers on development charges. Toronto Mayor Olivia Chow believes this will cut down barriers and create affordable homes for generations to come.

Other measures by the federal government, meanwhile, include the GST rebate on rental construction for new or substantially renovated long-term rental buildings until 2030. This cost will be spread over six years, at approximately $4.6 billion.

In addition, the federal government is moving forward with the Build Canada Homes (BCH) Plan, which aims to increase annual housing completions nationwide, targeting up to 500,000 units per year. This aims to expand prefabricated construction through $40 billion in financing to boost productivity and accelerate the process.

Rental apartment construction is expected to remain high, but according to projections, it is projected to slow down by 2027 as demand eases. As more low-cost units are built, demand for detached and semi-detached homes may recover slightly. Rental costs could become more reasonable with higher vacancy rates, and rental affordability is expected to improve gradually.

Canada’s federal affordable housing push, supported by ACLP loans, GST rebates, the BCH strategy, and regulatory deterrents for speculative investment, appears to be a comprehensive strategy to stabilize the rental market. Industry experts suggest that if these initiatives are successful, they can increase the number of affordable units and potentially lead to a positive shift in the rental market, making life more affordable for tenants.

At the same time, this shift is anticipated to be gradual. It will depend on effective implementation to ensure supply can outpace demand in a housing environment that has been persistently unaffordable for most Canadians.

Of course, there are additional factors that will likely play a role, such as the availability of labour, municipal zoning processes, and infrastructure capacity, in delivering affordable housing units.

In recent months, several industry groups have voiced skepticism, pointing out that while federal government funding and financing mechanisms are essential, the ability to bring projects to market is greatly dependent on speeding up approval processes and addressing local bottlenecks that add to construction times.

The federal push may influence investor behaviour in the rental market and could limit short-term rentals in high-demand cities to free up long-term rental supply. This could ease pressure on supply and support lower rent growth.

As these federal measures roll out, market observers expect a more stable rental environment with fewer price increases. For tenants, this could mean a gradual improvement in affordability as more supply becomes available. For developers, the combination of federal funding, rebates, and local incentives may make rental construction projects more financially viable.

Key Takeaway: Implementation

Ultimately, according to housing market experts, all this depends on the actual implementation.

The effectiveness of these measures will need to be closely monitored. However, if implemented efficiently, these actions could indeed balance the rental market, enhance stability for renters, and contribute to a more sustainable housing system nationwide.