How Inflation Affects Real Estate and What Investors Should Do

Inflation. It’s one of those big words that floats around the news all the time — and if you’re a real estate investor, you can't afford to ignore it. Whether you’re just starting out or have a few deals under your belt, understanding how inflation affects real estate can make the difference between thriving and barely surviving in today's market.

Let’s dive into what inflation really means for your investments and, more importantly, what you should actually be doing about it.

Inflation Pushes Property Prices Higher

The first and most obvious way inflation affects real estate is through property prices. As the overall cost of goods and services rises, so does the cost to build homes — materials like lumber, steel, and concrete all get more expensive. Developers have to charge more just to cover their increased costs, which sends home prices upward.

Even existing homes feel the pressure. Sellers know it’ll cost more for buyers to replace their homes with new builds, so they raise asking prices too. It's a ripple effect across the entire market.

Take Toronto, for example. According to the Toronto Regional Real Estate Board (TRREB), the average home price in March 2024 reached $1,121,615 — up 1.3% compared to March 2023, despite higher borrowing costs. Inflationary pressures helped keep real estate prices resilient even when sales volumes dropped.

What to do: Be extra cautious with your numbers. Don’t just look at today’s prices — think ahead about where costs might be six months or a year from now if inflation continues climbing. Give yourself bigger buffers in your budget.

Mortgage Rates Move Too 

Here's where it gets a little trickier. Inflation doesn't just push prices up — it often pushes interest rates up too. When inflation rises, central banks (like the Bank of Canada) usually hike rates to cool things down.

Higher interest rates make borrowing more expensive. That $500,000 mortgage you could comfortably afford at 2% looks a lot scarier at 5%. It impacts your monthly cash flow, your profit margins, and even the kind of properties you can realistically invest in.

For example, in Vancouver, someone looking to purchase a duplex might find that higher mortgage rates tack on hundreds — sometimes thousands — of dollars to their monthly payments. And if rents haven’t increased enough to cover that, the deal could turn from profitable to painful.

The move here: Lock in financing when rates are low, or get creative. Explore alternative lenders, consider seller financing, or look at joint ventures to spread out the risk. Staying flexible is key when the lending environment shifts.

Inflation Often Drives Rents Higher 

Not all effects of inflation are bad for investors. In many cases, inflation pushes up rental prices — and if you own income properties, that can be a major advantage.

Tenants feel the pinch of higher home prices and may choose (or be forced) to rent longer instead of buying. Meanwhile, landlords adjust rents upward to match the increased costs of maintaining properties, taxes, and insurance.

According to Rentals.ca, the average asking rent for all property types in Canada increased 8.7% year-over-year as of March 2024, reaching $2,181 per month. Cities like Calgary, Halifax, and Regina are showing especially strong rental growth.

Multifamily properties, in particular, tend to shine during inflationary periods. With multiple rental units under one roof, these properties spread risk across tenants and allow investors to steadily increase rents over time — helping to offset rising expenses. In markets where buying homes becomes unaffordable for many, demand for quality rental units climbs even higher, keeping vacancy rates low.

Property Expenses Inflate Too

While rising rents are a bonus, don’t forget: the cost of owning and operating properties rises too.

Property taxes tend to climb as municipalities adjust to rising property values. Insurance premiums go up as replacement costs increase. Even routine maintenance — like repairing a roof or upgrading HVAC systems — becomes more expensive during inflationary periods.

Say you own a fourplex in Ottawa. Two years ago, replacing the building’s roof might have cost $15,000. Today, due to material and labor cost inflation, that same project could easily exceed $20,000. These increases can sneak up if you aren’t actively setting aside reserves.

The best defense here is simple: always overestimate your reserves and plan for bigger repair budgets. Inflation won’t wait until you’re ready — it hits when it hits.

Real Estate Is a Hedge Against Inflation

Now, here’s the silver lining: real estate historically performs well during inflation.

Unlike cash, which loses purchasing power over time, real estate is a tangible asset that tends to rise in value alongside inflation. That’s why so many institutional investors and high-net-worth individuals put money into real estate during uncertain economic periods.

Data from Statistics Canada shows that while overall inflation rose by 2.9% year-over-year as of March 2024, property values in most major cities still outpaced that growth rate. Simply put, real estate can be a powerful long-term shield against inflationary losses.

If you’re thinking long-term, this is the time to focus on building a smart, resilient portfolio. Prioritize markets with strong population growth, diverse economies, and limited housing supply.

Stay Smart and Stay in the Game

Inflation can feel like a moving target. Prices rise, rates fluctuate, and it’s easy to feel like the ground is shifting under your feet. But for savvy real estate investors, these conditions also open up huge opportunities.

Understand how inflation affects real estate, adapt your strategies, and you’ll not only protect your investments — you’ll position yourself to thrive in any market.

If you’re serious about staying ahead, there’s no better time to join the fastest-growing real estate investment community out there. WealthGenius offers the education, tools, and networking you need to keep making smart moves — even when the market gets tough.

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