Ontario Rental Market Outlook 2026: Where Smart Investors Should Focus Their Capital
An Industry Report by Haletale
After months of extensive research and data analysis, our team at Haletale has compiled a comprehensive outlook for Ontario’s rental market heading into 2026. As property management software providers serving mid-sized property managers across Canada, we have a front-row seat to the trends shaping our industry. This report synthesizes insights from CMHC forecasts, Urbanation/FRPO studies, and real-time market data to identify the best investment opportunities for property managers and investors in the coming year.
Executive Summary: Top Markets for 2026 at a Glance
| Market | Investment Rating | Current Yield | 2026 Outlook | Best For |
|---|---|---|---|---|
| Kitchener-Cambridge-Waterloo | ⭐⭐⭐⭐⭐ Best Overall | 5-6% | Rising vacancy through 2026 creates acquisition opportunity; tech-driven long-term growth | Balanced cash flow + appreciation |
| London | ⭐⭐⭐⭐⭐ Strong Buy | ~5% | Temporary oversupply in 2025 eases by 2026; lower entry prices | Value investors seeking yield |
| Hamilton | ⭐⭐⭐⭐ Attractive | 5-6% | Vacancy peaks in 2026; Toronto proximity supports long-term demand | Patient capital, value play |
| Ottawa | ⭐⭐⭐⭐ Solid & Stable | 4-5% | Stable government employment; moderate vacancy increase | Conservative, income-focused investors |
| Toronto (GTA) | ⭐⭐⭐ Premium Play | ~4.1% | Low yields but strong appreciation; chronic undersupply | Capital gains over cash flow |
| Barrie & Kingston | ⭐⭐⭐ Emerging | 5-6% | Rising vacancy due to new supply; GTA migration continues | Secondary market specialists |
Key Findings from Our Research:
Market Fundamentals
- Ontario needs 418,000 rental units by 2034, but only 211,000 are expected to be built—a 207,000-unit deficit
- 2024 saw 50,000+ rental unit completions (35-year high), yet vacancy only reached 2.7% (long-run average)
- Vacancy rates will rise temporarily in 2025-26 before tightening again—creating a strategic acquisition window
- OSFI Mortgage Rules: Loans with >50% rental income face stricter underwriting and higher capital requirements (January 2026)
- GST/HST Rebate: Full 13% tax removal on purpose-built rentals started before December 31, 2030
- Rent Control: 2026 guideline capped at 2.1%, but units built after November 15, 2018 remain exempt
Investment Strategy
- Budget for larger equity contributions (20-30% down) due to new OSFI rules
- Focus on purpose-built rentals to benefit from tax rebates + market-rate rent potential
- View 2025-26 vacancy uptick as an opportunity, not a warning
Scroll down for detailed city-by-city analysis and actionable recommendations.
The Big Picture: A Market at an Inflection Point
Ontario’s rental market is experiencing a fascinating paradox. Between 2021 and 2024, the province added 1.3 million residents—explosive population growth that should have created a housing crisis. It did, but not in the way many expected.
In 2024, Ontario completed more than 50,000 purpose-built and condo rental units, the largest single-year increase in 35 years. Yet the vacancy rate only returned to its long-run average of 2.7%. What does this tell us? Demand is absorbing supply almost as quickly as it arrives.
Our analysis of Urbanation/FRPO projections reveals a sobering reality: Ontario will need approximately 418,000 rental units over the decade to 2034, but only 211,000 purpose-built and condo rental units are expected to be constructed. That leaves a deficit of roughly 207,000 units—a structural undersupply that will define the market for years to come.
Policy Shifts That Will Reshape Investment Strategies in 2026
The Double-Edged Sword of New Mortgage Rules
In January 2026, the Office of the Superintendent of Financial Institutions (OSFI) will implement a game-changing classification for rental property mortgages. Any mortgage that relies on more than 50% of rental income for qualification will be classified as “income-producing residential real estate (IPRRE).”
What does this mean for investors? Higher capital requirements, stricter underwriting, and an end to double-counting rental income across multiple properties.
Interestingly, this change will disproportionately affect smaller markets with lower property prices. In cities like Calgary or Edmonton, rental income typically covers most mortgage payments, so these loans will face the strictest scrutiny. Toronto, with its sky-high prices, is somewhat insulated—buyers there must already qualify primarily on personal income.
For property managers and investors, the takeaway is clear: budget for larger equity contributions in 2026 and stress-test your cash flows against higher borrowing costs.
Game-Changing Tax Incentives
The silver lining? Ontario has removed both the federal (5%) and provincial (8%) portions of HST on new purpose-built rental housing. This applies to projects with at least 4 apartment units or 10 rooms, where 90% of units are long-term rentals, and construction started between September 14, 2023, and December 31, 2030.
This tax relief substantially lowers development costs and improves returns, particularly in mid-sized cities. Combined with CMHC’s Apartment Construction Loan Program—which supported 88% of Canada’s new rental starts in 2024—these policies are driving a construction wave that will create acquisition opportunities in 2025-26.
Rent Control Reality
Ontario’s 2026 rent increase guideline is capped at 2.1%, down from 2.5% in 2025. However, this only applies to units first occupied before November 15, 2018. Newer purpose-built rentals remain exempt, allowing landlords to set rents at market levels. For investors, this means purpose-built rental properties built under the new tax rebate programs offer the best of both worlds: lower development costs and market-rate income potential.
City-by-City Analysis: Where to Invest in 2026
Our research team analyzed CMHC forecasts, local market conditions, and economic indicators for every major Ontario market. Here’s what we found:
Top Tier: Kitchener-Cambridge-Waterloo
Our #1 pick for 2026. The KCW region combines a thriving tech sector, strong university presence, and relative affordability that continues to attract families from Toronto.
CMHC forecasts housing starts to rebound in 2025 after a weak 2024, with purpose-built rental construction leading the way. The region has 4-7 rental units under construction per 1,000 residents—among the highest in Ontario. This will temporarily push vacancy rates higher through 2026, creating an ideal entry point for investors.
Key metrics: Yields around 5-6%, mid-2025 vacancy near 1.5%, strong household income growth supporting long-term rent increases.
Investment thesis: Acquire during the temporary oversupply phase in 2025-26, then benefit from the tech-driven economy and sustained demand as the market tightens again. This is the most balanced market for cash flow and growth potential.
Strong Buy: London
London stands out in our analysis for a simple reason: temporary oversupply creating a strategic acquisition window.
The city saw record rental completions in 2024, and CMHC expects the vacancy rate to rise in 2025 as supply temporarily outpaces demand. However, fewer new starts are expected in 2025 as developers focus on completing existing projects. By 2026, population growth will resume (fueled by Toronto migrants seeking affordability), and the supply bulge will be absorbed.
Key metrics: Lower purchase prices than Toronto, yields around 5%, mid-2025 vacancy near 1.5%.
Investment thesis: Buy during the high-vacancy phase at better prices, then ride the wave as London’s status as a regional hub for healthcare, education, and advanced manufacturing drives renewed demand. New transit projects and Housing Accelerator Fund commitments will accelerate growth through 2031.
Watch Closely: Hamilton
Hamilton’s proximity to Toronto and ongoing GO Transit expansion make it fundamentally attractive. However, housing starts fell to a near-decade low in 2024, and CMHC expects only a slow recovery.
Vacancy rates are predicted to peak in 2026 due to record completions and lower immigration, then moderate in 2027. OSFI’s new lending rules may temporarily depress investor demand, creating opportunities for well-capitalized buyers.
Key metrics: Yields 5-6%, mid-2025 vacancy 1.4%, diversified economy reducing risk.
Investment thesis: This is a value play. Higher supply and regulatory headwinds will create a buyer’s market, but long-term fundamentals remain strong. Property managers should anticipate slower rent growth and compete on service quality.
Steady Income: Ottawa
For investors prioritizing stability over explosive growth, Ottawa delivers. The federal government employment base provides recession-resistant demand, while increasing urban density initiatives support new rental development.
Population growth will slow to about half the pace of previous years, causing vacancy rates to edge up slightly. However, rent growth will continue due to low base vacancy and new high-rent units entering the market.
Key metrics: Mid-2025 vacancy around 1.5%, steady rent growth, lower default risk.
Investment thesis: Predictable cash flow with minimal drama. Purpose-built rentals benefit from GST/HST rebates and a supportive municipal approach to density. Best for institutional investors or those seeking portfolio stability.
Emerging Opportunities: Barrie and Kingston
These secondary markets show similar patterns: rising vacancy due to new supply, but continued migration from the GTA supporting long-term demand.
Barrie, as a commuter city benefiting from the remote work trend, has 4-7 rental units under construction per 1,000 residents. Local reports indicate vacancy rose to around 3% in 2024 after years below 1%, giving investors breathing room to acquire properties at reasonable prices.
Kingston, as a university town with Queen’s and RMC, saw vacancy climb from 0.8% in 2023 to 2.9% in 2024 as new purpose-built rentals opened. However, several thousand more units are under construction or approved.
Investment thesis: Best suited to investors comfortable with mid-sized cities and property managers experienced in student or remote-worker rentals. High per-capita construction pipelines create short-term competition but demonstrate long-term confidence in these markets.
Premium Market: Toronto
Toronto presents a different value proposition entirely. With an average yield around 4.1% and mid-2025 vacancy of 1.1%, the GTA is a capital appreciation play rather than a cash-flow investment.
The city’s heavy reliance on condominium rentals is concerning—new condo sales fell to a 30-year low in 2024, which will limit future rental completions. Purpose-built rental starts remain below demand, with only 2.6 units per 1,000 residents in the pipeline (below the provincial average).
However, chronic undersupply and massive transit investments (Ontario Line, Eglinton Crosstown, GO rail expansion) support long-run demand. High prices and tighter OSFI rules reduce leverage opportunities, but well-capitalized investors seeking long-term appreciation should still consider selective GTA acquisitions.
Critical Success Factors for 2026
1. Finance Strategically
The OSFI rules change everything. Property managers advising investor clients should emphasize:
- Larger equity requirements (20-30% down payments may become standard)
- Higher stress-test thresholds
- Earlier mortgage broker consultations to understand new underwriting criteria
Investors who adapt quickly will gain a competitive advantage as less-prepared competitors struggle to secure financing.
2. Leverage Policy Incentives
Projects started by late 2030 can still claim full GST/HST rebates, drastically improving returns. CMHC’s MLI Select program offers reduced premiums and extended 30-year amortization, especially for projects meeting affordability and sustainability criteria.
Property managers should proactively educate investor clients about these programs—they represent free money on the table.
3. Professionalize Property Management
As vacancy rates rise temporarily in 2025-26, tenant retention and service quality will separate winners from losers. At Haletale, we’ve built our platform specifically to help property managers deliver the level of service that keeps good tenants in place:
- Streamlined maintenance request tracking
- Automated rent collection and financial reporting
- Tenant communication portals that improve satisfaction
- Real-time vacancy and lease renewal tracking
Technology isn’t a luxury anymore—it’s the baseline expectation for professional property management.
4. Think Long-Term
The temporary vacancy uptick in 2025-26 is not a crisis—it’s an opportunity. Markets with the strongest fundamentals (KCW, London, Hamilton) will absorb the new supply within 18-24 months, then tighten again as the structural deficit reasserts itself.
Investors who panic and exit during the oversupply phase will miss the next appreciation cycle. Those who maintain their positions and acquire strategically will be rewarded.
The Bottom Line
Our extensive research points to a clear conclusion: Ontario’s rental market remains structurally undersupplied despite near-record completions. The 207,000-unit deficit projected through 2034 is not a temporary blip—it’s a fundamental supply-demand imbalance that will persist for years.
For property managers and investors, 2026 represents a strategic inflection point:
- Kitchener-Cambridge-Waterloo offers the best balance of cash flow yield (5-6%) and growth potential, backed by a tech-driven economy and high construction pipeline.
- London provides a compelling value opportunity as temporary oversupply in 2025 creates acquisition windows before renewed growth tightens the market in 2026.
- Hamilton rewards patient investors willing to navigate near-term oversupply for long-term gains from Toronto connectivity.
- Ottawa delivers stable, predictable income for conservative portfolios.
- Barrie and Kingston present emerging opportunities for investors comfortable with secondary markets.
The temporary increase in vacancies during 2025-26 should not be viewed as a warning—it’s a rare chance to invest in quality assets before the next tightening cycle. Property managers who help their investor clients understand this dynamic will build deeper, more trusted relationships.
At Haletale, we’re committed to providing property managers with the tools and insights they need to navigate these market shifts successfully. Our platform is designed specifically for mid-sized property managers (50+ units) who need enterprise-grade capabilities without enterprise-level complexity or cost.
The Ontario rental market is entering a new phase. The question isn’t whether to invest—it’s where, and with whom.
This report synthesizes data from CMHC Housing Market Outlook (February 2025), Urbanation/FRPO Ontario Rental Market Study (February 2025), and provincial policy announcements. For property managers interested in learning how Haletale can help you capitalize on these opportunities, contact our team for a personalized demo.
