Population slowdown is cooling Canada’s housing market: BMO

Canada’s abrupt population slowdown is reshaping the housing market, easing pressure on rents while weighing on investor-owned condominiums and future residential construction, according to BMO Economics.

After reaching century highs in 2023 and 2024, Canada’s population declined in 2025, marking the first annual drop on record dating back to Confederation, BMO said. The reversal has pushed population growth from more than 3% to roughly zero, largely due to a sharp reduction in the number of non-permanent residents.

Net outflows of non-permanent residents topped 460,000 over the past year, just as more than 180,000 rental units remain under construction. Rental units being built now outnumber combined condominium and homeownership units for the first time, according to the bank.

That supply is arriving as rental demand weakens, creating a particularly difficult backdrop in British Columbia and southern Ontario, where construction has been strongest and the decline in non-permanent residents has been most pronounced.

“Policymakers spent years unsuccessfully fighting deteriorating housing affordability on the supply side, but found success with the stroke of a pen when immigration caps—a demand-side measure—were put in place,” BMO economists Douglas Porter and Robert Kavcic wrote.

Rental and condo markets feel the shift

Asking rents across major markets were down 4.7% year-over-year in May, while rent inflation within the consumer price index slowed to 3.5%, from a peak of 9% in 2024.

BMO expects rents to weaken further as new purpose-built apartments and investor-owned condos reach the market. Improved affordability in the resale market could also encourage some renters to move into homeownership.

The shift is also weighing on condominium investment, with BMO noting that current capitalization rates offer investors little compensation for declining rents, tenant risk and weak expectations for price growth.

As a result, condo presales in some major cities have fallen to levels typically associated with a recession, which the economists said should eventually translate into further declines in residential construction.

The population reversal is also challenging the assumption that slower immigration must lead directly to weaker near-term economic growth. “In the past 50 years, there is, in fact, zero correlation between year-over-year population growth and real GDP growth,” Porter and Kavcic wrote.

Canada recorded only modest economic growth during the population boom, while real consumer spending still rose 2% year-over-year in the first quarter of 2026 despite the sharp immigration slowdown.

BMO said the economy was arguably weaker in 2023, when rapid population gains masked a steep decline in GDP per capita. Per-capita growth has since turned slightly positive.

Slower population growth is also easing pressure on the labour market, with the number of unemployed workers for each job vacancy rising from roughly one in 2022 to more than three and youth unemployment reaching its highest non-pandemic level since 2010. “For the macro economy, we remain short of work, not workers,” the economists wrote.

BMO said the population slowdown was likely a necessary correction following several years of unsustainable growth that contributed to deteriorating housing affordability and excess labour supply.

“A more stable, predictable and sustainable immigration policy would be a ‘good’ thing for the economy,” the economists concluded.