Canadians are anxious about how the country’s future will unfold thanks to Donald Trump’s U.S. tariffs, which took effect earlier this year. Canada has never faced such economic pressure from its largest trading partner, and experts are worried that a deep, prolonged recession could emerge. The Canadian government has retaliated with counter-tariffs on U.S. goods, sparking fears of a long-lasting trade war. The situation is evolving daily, with no way to predict how or when it will end.
Landlords across the country are naturally concerned about the potential effect of the U.S. tariffs. A distressed economy could affect property values, construction costs, vacancy rates, and delinquencies on rent payments. And not in a positive way.
SingleKey’s MacKenzie Wilson, Director of Customer Engagement, and Alex Lau, Business Development Associate, landlords based in Alberta and Ontario, respectively, recently sat down to discuss the impact of tariffs on the Canadian rental market and the importance of understanding both short- and long-term implications for landlords and property investors.
The current Canadian rental market
Rent prices are declining in some parts of Canada, most notably Ontario, says Alex. “We’re seeing quite a significant slowdown in the rental market already, especially affecting the condo market here in Ontario. You’re seeing drastic drops in rent.”
He mentions the average rental price has fallen 10% to 15% compared to one to two years ago. And that’s before the tariffs arrived, which means the rental market may drop further once their effects are felt.
MacKenzie notes Alberta is experiencing a drop in rental rates as well. Similar to Ontario, the average year-over-year rental price could fall as much as 15% to reflect the overall change across Canada.
Here’s a resource to stay up-to-date with the rental prices in Canada.
Short-term effects of U.S. tariffs
How could U.S. tariffs impact the rental market from a short-term perspective? Alex believes an immediate threat is mass job losses due to businesses relocating to the U.S. This wave of layoffs can cause vacancy rates to spike as renting becomes increasingly unaffordable for many Canadians. And as demand for rental units drops, so do rent prices.
“You already have news that larger manufacturing companies are switching their bases back into the United States. So those are good paying jobs, a lot of blue collar jobs as well that will affect the market as a whole. So, I personally think that rents not only will stay depressed, but it might be a longer haul, closer to a year or two.”
Long-term effects of U.S. tariffs
What about the long-term impact of tariffs? MacKenzie is concerned about inflation reigniting, which may cause interest rates to rise. That could lead to debt servicing issues for landlords with a mortgage on their rental properties. Those with mortgage renewals coming up may get stuck with higher payments if interest rates surge.
Alex agrees, noting that the Bank of Canada shares the same sentiment regarding the risk of higher rates and debt payments. He also adds that landlords may have to contend with higher home prices. The reason is simple: tariffs will increase the cost of materials and labor required to build homes. This trend of higher production costs may lead to fewer housing starts, making homes more expensive to purchase.
Alex elaborates on this point: “We’re not going to see it in the next six months. It will probably come to fruition closer to a year or two as the stockpile of remaining materials gets depleted and new orders are needed.”
Best-case vs. worst-case tariff scenarios
Given their unprecedented scope and scale, MacKenzie says it’s tough to imagine the best-case and worst-case scenario of the Trump administration tariffs. However, he has some ideas about what landlords can expect.
“I think one of the biggest variables is duration,” notes MacKenzie. “How long will these tariffs last if they do come into effect?” He says that in the best-case scenario, the tariffs are short-lived, lasting a few weeks or months. In that case, the economy will experience a temporary dip and recover quickly. Even if the tariffs persist, the Bank of Canada may cut interest rates to spur economic activity, thwarting their negative impact.
What does the worst-case scenario look like? Both MacKenzie and Alex agree that long-term tariffs may lead to prolonged supply chain issues, slowing the construction of new homes. If the cost of materials and labor rises significantly, the Bank of Canada may hike interest rates to curb inflation. Higher rates will negatively impact landlords’ cash flow as the cost of servicing a mortgage will increase.
Practical tips for landlords to weather economic uncertainty
Reduce length of vacancies
Alex recommends that landlords minimize the time their rental units sit empty. “It’s not the rent price that will ultimately make you lose money; it’s your vacancies.” MacKenize agrees, explaining that landlords “must be price sensitive and be aggressive in getting someone in the door.”
In a renter’s market, it’s better to prioritize occupancy over maximizing revenue. Lowering rent slightly to attract tenants saves money in the long run.
Lock in lease renewals early
MacKenize and Alex go on to discuss tactics for structuring lease agreements. MacKenzie advises landlords to lock in lease renewals two to three months ahead of the renewal date. This ensures a steady rental income for an extended period, helping avoid cash flow issues that may arise from economic uncertainty.
Use incentives to attract tenants
“Don’t shy away from incentives,” adds Alex, mentioning how well-established landlords and REITs offer one or two free months of rent to entice renters. To ensure a tenant completes their lease, he suggests placing the free month at the end rather than the beginning.
Alex also recommends tying these discounts to positive tenant behavior, such as making on-time payments. For example, a tenant who fails to pay rent on time would not be eligible for the free month at the end of the lease.
Mortgage and expense management
Clamping down on expenses is vital for landlords to remain profitable amid rising operating costs and inflation.
MacKenize emphasizes the importance of keeping mortgage payments low since that’s usually the most significant expense. And one way to do that is by choosing a longer amortization period. “String it out as long as possible to get the lowest possible monthly payment,” he says.
While this strategy leads to more interest charges, he notes landlords can leverage top-ups and prepayment options. The effect reduces the principal, lowering interest charges in the long run, but without sacrificing cash flow.
MacKenzie advises landlords to examine other recurring costs, such as insurance, to determine if they can land a cheaper deal. He also recommends setting up a healthy cash reserve to cover potential losses.
“You want to fortify and be in the best cash flow defensive position possible. And if you’re taking that kind of haircut loss, you better start making sure you’ve got some cash reserves in place. If you don’t, see if you can get qualified for a line of credit right now while you’re still in a stronger position.”
Stay adaptable
Flexibility is key amid the tariff chaos. And for some landlords, that may entail making decisions that result in temporary financial pain. “Don’t be afraid to take short-term losses,” remarks Alex, alluding to the importance of filling vacancies quickly to ensure steady rental income. He advises landlords to closely monitor demand for rental units so they can set an appropriate price. Responding swiftly by charging what renters are willing to pay is vital for long-term stability.
Negotiating to retain a good tenant is also a smart move, even if it means accepting lower rent at renewal. The reason is that finding a replacement tenant can cost a bundle. MacKenize highlights some expenses involved in preparing a rental unit for a new tenancy: cleaning, repairs, realtor fees, property management fees, and advertising.
“Even if you reduce rent for your current tenant, you’re still saving money when compared to finding a new one all over again. If you have a good and responsible tenant, you try your best to keep them around,” says MacKenzie.
Protect your rental income
As Alex notes, “During tough economic times, job loss is a real risk for many tenants.” Therefore, non-payment of rent is a big risk to landlords. To protect against potential financial disaster, landlords should explore programs like SingleKey’s Rent Guarantee.
The Rent Guarantee Program acts as a financial safety net for rental properties, ensuring landlords continue receiving rent should a tenant fail to pay. SingleKey will cover lost rent for up to 12 months, up to $60,000. In addition, the program provides compensation for property damage expenses and legal fees in case of an eviction.
Policy and economic outlook
Undoubtedly, the federal government will respond to the U.S.-imposed tariffs to support the Canadian economy. But what kind of action can we expect regarding policy? And what’s the potential ripple effect for the economy?
Alex believes there’s reason to remain optimistic. He predicts that more funds will be allocated to bolstering the country’s infrastructure, such as the proposed development of a high-speed rail network between Toronto and Quebec City. These initiatives will create many lucrative jobs, helping stabilize the economy for years.
MacKenize also notes the prospect of eliminating interprovincial trade barriers, which could increase Gross Domestic Product (GDP) substantially. “We can add 210 billion to our GDP and economy by just removing trade barriers among provinces,” he says, citing recent statistics.
MacKenzie also stresses the importance of policies that support domestic energy production. An independent and robust energy sector ensures Canada doesn’t rely on imports to keep the lights on. Energy investment can strengthen the overall economy, too, including the rental market.
Our final thoughts
It’s tough to predict the outcome of Trump’s tariffs on Canada. For now, it’s a “wait and see” period, where consumers and businesses are doing their best to prepare for what may come.
So, what can landlords do? Focus on reducing ongoing expenses, improving cash flow, and proactively securing leases to stabilize rent payments. Protecting rental income with programs like the Rent Guarantee is also wise.
In addition, being flexible is key, especially regarding rent pricing. Landlords who adapt quickly and stay informed will be much better positioned to weather the storm, much like during COVID. There may be short-term losses to endure—but the future can still be bright and profitable. “Real estate is the long game,” says Alex. “The longer you hold, the more lucrative it becomes.”
