A Bank of Canada researcher decomposed one-bedroom asking-rent growth from 2020–2026 and found renter-household growth and financing costs drove most of the rise after 2021, but the model cannot account for the early 2020 increase.
Financing costs were a major contributor in 2022 (about 7.0 percentage points of y/y growth) but their contribution fell after rate cuts and finished adding roughly 5 points across Q4 2021–Q4 2024.
The model assigns large 'unexplained' contributions to early 2020 rent growth — 5.4 percentage points of a 6.7% y/y increase in Q1 2020 — leaving the initial upswing unexplained by demographic or financing factors.
Canadian cities between 2020 and 2026. The goal was to break observed rent changes into components that the model can attribute to specific drivers: renter-household growth, financing costs, rental supply, and an unexplained residual.
From Q4 2021 to Q4 2023 the composite index rose about 27.3%. Rents then contracted through Q2 2026 but remained about 21.0% above Q4 2021 levels. Regional patterns varied: Calgary (+45.1%), Halifax (+32.4%), and Quebec City (+31.3%) had the sharpest increases through Q4 2023, while between Q4 2023 and Q2 2026 Vancouver and Toronto led declines (about -10.9% and -10.7% respectively).
The researcher finds renter-household growth and financing costs accounted for most of the rise after 2021. In 2022, when interest rates started rising, asking rents were 15.8% higher year-over-year in Q4. The model attributes 7.9 percentage points of that increase to household growth and 7.0 points to financing.
The model also finds rental supply growth reduced rent pressure by about 10 points over the same window, likely driven in part by increased secondary-market rentals such as condo units becoming available for rent in cities like Toronto and Vancouver.
The paper flags a notable unexplained component early in the sample. In Q1 2020 asking rents were up 6.7% year-over-year, and the model assigns 5.4 percentage points of that increase to unexplained factors — roughly 81% of the net early rise. That portion predates the later household-growth surge and the rise in financing costs, and the paper does not identify obvious causes for it.
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