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Toronto’s rental market saw average prices drop eight percent for two-bedrooms and four percent for one-bedrooms in April over March, according to data released earlier this month by

While a single month doesn’t make a trend, market dynamics are not moving in a direction that favours property investors accustomed to strong monthly rent increases.

Viewed as notoriously tight only months ago, the rental market in Canada’s largest city has been far from immune to the effects of the COVID-19 pandemic, with activity freezing up in response to physical distancing and business shutdown measures.

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A recent brief published by Capital Economics dives into the multitude of reasons that explain the growing threats to property investors in Toronto’s rental market. A top concern identified by the firm is the staggering decline in immigration to Canada already underway as a result of the pandemic.

Stephen Brown, an economist with Capital Economics whose work focuses on Canada, wrote that net immigration to the country has fallen from 30,000 monthly arrivals to close to zero. Alongside Vancouver, Toronto is the destination for the highest number of immigrants to the country, most of whom rent upon their arrival.

Brown wrote that the impact of this drop in immigration and the corresponding rise in rental supply could be “very significant,” not just to the rental market but also to resale home prices and the broader real estate market’s overall stability.

But it’s not just immigration that is poised to radically change the rental landscape in Toronto. Brown also pointed to a potential influx of former Airbnb vacation rentals added to the long-term rental pool.

Faced with an unprecedented decline in tourism and business travel and short term rentals temporarily banned in Ontario, many investor-owners are shifting their units to the long-term rental market. Brown estimated that this could add 7,900 vacant units to the Toronto rental market, more than the total number of vacant units in the city at the beginning of 2020.

While the economist admitted that his work only made crude estimates based on the data currently available, Brown suggested that even a less extreme scenario could see Toronto rents likely falling 5 to 10 percent by mid-summer as a result of a higher citywide vacancy rate, with rental supply rising as demand declines.

Toronto’s vacancy rate has been painfully low for years and renters have long been hoping for relief in the form of lower prices and more options in the market. Purpose-built rentals and new condo units were poised to hit multi-decade and multi-year highs, respectively, in 2020. Some of these units may face construction delays as a result of the pandemic, but with all housing construction resumed in Ontario earlier in May, a large-scale disruption is unlikely to materialize.

Taken together, this increase in supply sounds like a win for the city’s renters. However, this group has also been more severely affected by layoffs since mid-March, as BMO Senior Economist Robert Kavcic noted earlier this month. Clearly, it remains to be seen if this crisis will produce a winner for any group in the market.

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