Affordable Rentals in a Recession: Why They Outperform

Affordable rental properties consistently outperform luxury units during downturns. Learn the demand floor effect, downward mobility advantage.

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Affordable Rentals in a Recession: Why They Outperform

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Here’s something that trips up a lot of investors: when the economy tanks, affordable rental properties tend to perform better than luxury ones.

I know. Sounds backwards. You’d think lower-income tenants would be riskier during hard times. But the data tells a completely different story — and once you understand why, you’ll build a portfolio that holds up when everything else gets shaky.

Let me walk you through the economics of recession-resistant rental investing, with a specific focus on what this looks like for Canadian investors.

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What Actually Happens to Rental Markets During Recessions

When the economy contracts, rental markets shift in predictable ways.

People lose jobs. Hours get cut. Some tenants stop paying rent. Others scramble for somewhere cheaper. Transaction volume drops, financing tightens, and property values slide.

But here’s what most investors miss: these effects hit different market segments in completely different ways.

Recession Impact	Luxury Properties	Affordable Properties
Rent collection	Higher risk of missed payments	More stable collection rates
Vacancy rates	Often spike significantly	Often hold steady or drop
Value decline	Steeper drops	More moderate declines
Recovery timing	Slower to bounce back	Faster recovery

Luxury tenants have options. They can downsize, move to a cheaper neighbourhood, or wait out the market in a less expensive unit. Affordable housing tenants? They’re already at or near the bottom of what they can afford. There’s no cheaper option to move to.

That single difference changes everything about how your investment performs.

The “Demand Floor” Effect Explained

Think about it this way: people need a roof over their heads regardless of what the economy is doing. That basic human need creates demand that doesn’t vanish just because GDP is shrinking.

Affordable rentals serve people who can’t cut their housing costs any further. A luxury tenant paying $2,800 a month in Toronto might downsize to something for $1,800. But an affordable tenant paying $1,400? There’s nowhere cheaper to go — and most people will do almost anything to avoid losing their housing entirely.

This creates what I call a demand floor under affordable housing. It’s a baseline of rental demand that persists no matter what the broader economy does. Luxury properties simply don’t have this.

According to CMHC’s 2025 Rental Market Report, purpose-built rental vacancy rates in Canada’s most affordable rental segments stayed below 3% even during periods of economic softening — while higher-end units saw vacancy climb to 5–8% in several major markets.

Downward Mobility Works in Your Favour

Here’s another dynamic that works in your favour if you own affordable properties: when times get hard, people move down the housing ladder, not up.

That tenant paying $2,800 a month for a condo in downtown Vancouver who gets laid off? They start looking at $1,500 apartments in Surrey or New Westminster. The middle-class family in Calgary whose income drops 30%? They need affordable housing now.

This downward mobility actually increases demand for affordable rentals during recessions. You’re not fighting over a shrinking pool of tenants — you’re absorbing demand from people who used to live in more expensive housing.

I’ve seen affordable properties maintain near-full occupancy during downturns while luxury buildings in the same city struggle with 15–20% vacancy. The math here isn’t complicated. More demand plus limited supply equals stable cash flow.

If the demand floor effect and downward mobility dynamics have you rethinking your portfolio mix, book a free strategy call with LendCity and we will help you structure financing that holds up through a full cycle.

How Affordable Properties Hold Their Value

When property values decline during recessions, affordable properties typically drop less than luxury alternatives. Here’s why.

Less speculative premium to lose. Luxury real estate carries a significant premium built on prestige and appreciation expectations. When confidence evaporates, that premium disappears fast. Affordable properties are priced closer to their fundamental utility value — what someone will actually pay for basic, solid housing. There’s less air to come out of the balloon.

Stable occupancy supports value. When your property stays fully occupied and generating income, there’s far less pressure to slash the price than when you’re staring at empty units and bleeding cash every month. Income-producing assets get valued on their income. No income, no value.

Faster recovery when the economy picks up. Pent-up demand from people who delayed moving out on their own or starting families gets released at affordable price points first. People can afford $1,400 in rent long before they can afford $2,800. Your units fill up first coming out of a recession.

Look at what happened in Canadian markets during the 2020 slowdown. Condos in downtown Toronto saw values dip 5–10% and vacancy spike past 5%. Meanwhile, affordable rental units in secondary markets like Hamilton, London, and Moncton barely blinked. That pattern repeats in nearly every downturn.

The Risks You Still Need to Manage

I’m not going to pretend affordable rentals are bulletproof. They’re not. But the risks are specific, and you can manage them if you’re proactive.

Your tenants have less financial cushion. When something goes wrong — a job loss, a medical issue, a car breakdown — affordable housing tenants often have very little in savings. A problem that a higher-income tenant absorbs without blinking can spiral into a payment crisis for someone living paycheque to paycheque. Know this going in.

Collection challenges are real. When tenants can’t pay, they can’t pay. No amount of aggressive collection tactics changes the math. Eviction costs money (especially in tenant-friendly provinces like Ontario and British Columbia, where the process takes months) and creates vacancy. Build relationships where tenants tell you about problems early. That gives you options. An adversarial approach gives you headaches.

Maintenance can’t slide. Affordable properties that deteriorate lose their competitive edge and start attracting problem tenants. That’s a downward spiral you don’t want. Keep the property in solid condition through every phase of the cycle, even when cash flow is tight. Budget for it now, not later.

Concentration risk is real. A portfolio made up entirely of affordable properties in one city faces serious trouble if that market gets hit hard. Think about what happens to a resource town like Fort McMurray when oil prices crash. Spread your risk across markets and property types.

Want to keep your loan-to-value ratios below 75 percent and lock in fixed rates while they are still in the 4 to 5 percent range? Book a free strategy call with us and we will build a conservative financing plan together.

How to Build a Recession-Resistant Canadian Portfolio

If you want your portfolio to hold up through full economic cycles, be intentional about how you build it.

Pick Markets With Diverse Employment

Cities that depend on a single industry get hammered when that industry struggles. Look for markets with a broad economic base — healthcare, education, government, manufacturing, tech, and multiple private-sector employers.

In Canada, think Ottawa (government + tech), Halifax (healthcare + military + education), or Kitchener-Waterloo (tech + manufacturing + university). These markets don’t swing as wildly as single-industry towns.

Target Properties Near Recession-Resistant Employers

Essential workers, government employees, healthcare professionals — these people keep working even when the economy contracts. Properties near major hospitals, military bases, universities, and government offices attract more stable tenants.

A duplex near a regional hospital in a mid-sized Canadian city? That’s about as recession-resistant as rental income gets.

Structure Your Financing Conservatively

This is where a lot of investors get burned. They’re over-leveraged when the downturn hits, and they can’t survive even a few months of reduced income.

Keep your loan-to-value (LTV) ratios below 75% where you can. Lock in fixed-rate mortgages — with the Bank of Canada’s policy rate sitting around 3% in early 2026, you can still get five-year fixed rates in the 4–5% range. Working with Residential Mortgage Financing helps you secure conservative financing terms that protect you through full market cycles.

Most importantly, hold cash reserves. Six months of total carrying costs per property is a solid target. That lets you cover vacancy, collection problems, or unexpected repairs without triggering a crisis.

Don’t Push Rents to the Absolute Max

If you’re always squeezing every last dollar of rent, you have zero room to flex when things get tight. Pricing your rents slightly below the absolute ceiling gives you the ability to retain good tenants during difficult stretches — and that retained tenancy is worth far more than the extra $50 a month you’d collect in good times.

What to Do When a Recession Hits

If you’re already holding properties when a downturn arrives, here’s your playbook.

Talk to your tenants. Understand their situations — are they still employed? Worried about layoffs? Planning to stay or thinking about leaving? Tenants who feel heard are far more likely to communicate problems early, before they become crises.

Be flexible with good tenants who hit a rough patch. Losing a reliable tenant who’s temporarily struggling costs you the relationship, the turnover expense, and potentially months of vacancy. A short-term rent reduction or a payment plan is almost always cheaper than finding a new tenant.

Cut expenses without cutting quality. Get competitive quotes on property management, insurance, and maintenance contracts. Defer cosmetic upgrades that don’t affect liveability. But don’t skip the furnace maintenance or ignore the leaky roof — that’s how small problems become expensive ones.

Stay ready to buy. Recessions create the best buying opportunities most investors will ever see. Distressed sellers, motivated banks, and reduced competition show up precisely when everyone else is running scared. If you have capital and solid financing in place, a recession is when you build real wealth.

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Frequently Asked Questions

Should I sell my rental properties before a recession?

Almost certainly not. Timing recessions accurately is virtually impossible — even professional economists get it wrong more often than right. Selling in anticipation of a downturn that doesn't come (or comes two years later than expected) sacrifices returns for no real protection. If you've bought well and financed conservatively, hold through the cycle.

How much rent reduction should I offer to keep tenants during a downturn?

Enough to keep quality tenants in place, but not so much that you can't cover your carrying costs. Run the numbers: compare the cost of a modest 5–10% rent reduction for a few months against the cost of vacancy, turnover, and finding a new tenant. In most cases, the reduction is the cheaper option by far.

Is affordable housing always recession-resistant?

It shows better *relative* performance, but nothing is truly recession-proof. A severe, prolonged economic collapse affects all property types. Affordable housing holds up better than luxury in most scenarios, but you still need conservative financing, cash reserves, and market diversification to protect yourself.

Should I shift my portfolio from luxury to affordable properties right now?

Don't make portfolio changes based on recession fear. Make them based on long-term strategy. If affordable properties fit your investment approach, your target returns, and your management capacity better — shift for those reasons. Panic repositioning based on economic anxiety usually produces bad results and unnecessary tax consequences.

What exactly is the demand floor effect in affordable rental housing?

The demand floor effect is simple: affordable housing tenants have no cheaper alternative. They're already near the bottom of the market. Unlike luxury tenants who can downsize when money gets tight, affordable tenants stay put because there's nowhere cheaper to go. This creates a baseline of demand that persists regardless of economic conditions, keeping your vacancy rates stable even when the broader market softens.

How does downward mobility benefit affordable rental property owners?

During downturns, higher-income tenants who lose jobs or take pay cuts move down the housing ladder into more affordable rentals. This actually *increases* demand for your affordable units. You're capturing tenants who previously lived in pricier housing — often tenants with better credit histories and rental track records than your typical applicant pool. Your occupancy stays strong while luxury landlords scramble to fill units.

What financing strategies protect rental portfolios during recessions?

Three things matter most. First, keep your leverage reasonable — don't borrow the absolute maximum. An LTV below 75% gives you breathing room. Second, lock in fixed interest rates so a rate spike doesn't blow up your cash flow. Third, maintain cash reserves equal to at least six months of carrying costs per property. That buffer lets you weather vacancy, collection problems, or surprise repairs without being forced into a distressed sale.

Build for Resilience Before You Need It

Affordable rentals give you something rare: relative stability when economic conditions turn ugly. The demand floor effect, downward mobility patterns, and faster recovery all favour affordable properties when the economy struggles.

This doesn’t mean affordable properties are easy. They require hands-on management, solid tenant relationships, and consistent property upkeep. But for Canadian investors who want a portfolio that actually cash flows through a full economic cycle — not just during the good times — the affordable rental segment deserves a hard look.

The time to recession-proof your portfolio is before the recession, not during it. Get your financing conservative, your reserves stacked, and your properties positioned in strong markets with diverse employment.

When the next downturn arrives, you’ll be glad you did.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

Written by

LendCity

Published

February 7, 2026

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9 min read

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