The Interest Rate Trap: How Rising Rates Are Shaping Canada’s Housing Market

A Historic Surge in Interest Rates

Over the past year, interest rates have risen at a pace not seen since the early 1980s. Traditionally, policymakers use rate hikes to control inflation, even at the risk of slowing employment growth. However, this time, the rapid increase in interest rates has created an unintended consequence—soaring rental prices.

A Perfect Storm: High Rates, Low Supply, and Rising Demand

Higher interest rates typically cool the economy and reduce demand for housing. But today’s market is different. A combination of limited housing supply and increased immigration has caused demand to surge, pushing rental prices to record highs. Instead of stabilizing the market, high rates have made it even harder for developers to justify new projects, slowing down the much-needed housing supply in key urban centers.

Urban Expansion: The Only Way Is Up

Canada’s most in-demand regions—Greater Toronto and Greater Vancouver—face natural barriers to horizontal growth, such as protected greenbelt zones. With nowhere to expand but up, developers must build high-density housing, which comes with higher costs and longer timelines. The result? A worsening rental supply crisis with no quick fix.

The Investment Opportunity in Housing

Despite market challenges, real estate presents strong investment opportunities. With the federal government driving aggressive population growth, rental rates are expected to climb even higher, making rental housing an increasingly attractive asset. Investors can capitalize on this moment through high-quality mortgage funds, providing exposure to the real estate financing sector, rental housing funds, which acquire and manage apartment buildings in high-demand areas, and development investments, allowing direct participation in the profits of new housing projects.

Partner With Waverley for Smart Real Estate Investments

At Waverley, we have direct insights from the front lines of housing development. While interest rates have made homeownership more expensive, demand remains strong for entry-level housing. Our experienced Dealing Representatives can guide you through investment options that not only grow your portfolio but also contribute to solving Canada’s housing crisis.

— Don McDonald, 2023