During the final stage of a housing boom and the inevitable contraction that follows, the lowly rental finally has its day. With the average price of a detached home in Vancouver and Toronto shooting past CAD1 million, many prospective homeowners are simply priced out of the market.

And while condos are often an attractive alternative for entry-level buyers, prices for high-rise condos are also prohibitively expensive, hitting CAD450,000 in Toronto at the end of September, according to data gathered by RealNet Canada, even though the condo market is softening.

Although the real estate bubble has resulted in a glut of supply of new condos, new rental properties are relatively scarce in the major cities, with many renters living in aging concrete towers built 40 or 50 years ago.

Naturally, the scarcity of new rental stock also helps drive rents on existing rental properties higher. Meanwhile, owners of older apartment buildings are starting to renovate their properties in a bid to boost rents even further, with some adding luxury amenities equivalent to those offered by new condos.

As the Financial Post recently put it, the next boom in Toronto’s “supercharged” housing market will be rental apartments.

And that could be the case across Canada as well. During the second half of 2014, there were about 24,000 rental units under construction across the country, up 52% year over year, according to CBRE Group.

The Globe and Mail reports that rental starts across Canada’s six biggest cities are now double their five-year average.

“Canada is at the early stages of a new apartment construction renaissance, really,” said Derek Lobo, CEO of apartment brokerage Rock Advisors, in an interview with The Globe and Mail.

Based on recent gains in the unit price of Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF), investors appear to have already anticipated it.

After marching steadily higher off its bottom during the Global Financial Crisis, CAPREIT’s units fell sharply in mid-2013 during the so-called “taper tantrum” that followed the U.S. Federal Reserve’s announcement that it was planning to wind down its extraordinary stimulus.

The real estate investment Trust (REIT) then traded in a narrow range at this lower level for about a year. But after management reported numbers last May that beat analyst estimates for first-quarter funds from operations (FFO) by 13%, CAPREIT’s units started to go parabolic.

In the 10-months since then, the REIT’s units have risen 34.3% on a price basis in local currency terms, compared to 2% for the S&P/TSX Composite Index and 2.8% for the S&P/TSX Capped REIT Index.

In fact, over the trailing year, CAPREIT has absolutely trounced its Canadian REIT peers, delivering a total return of almost 41.7%, almost double that of the next top performer.

On the fundamental side, one of the noteworthy things about the REIT’s financial performance is that it’s been driven by organic growth, as opposed to the acquisition-fueled growth characteristic of a number of its REIT peers.

To be sure, CAPREIT is no slouch on the mergers-and-acquisitions front. The CAD3.1 billion company has made CAD1.5 billion in acquisitions over the past four years. But it’s the steady increases in rents that have underpinned its performance more recently.

According to management, average monthly rents for same residential properties increased by 2.1% year over year in 2014. Meanwhile, same-property net operating income (NOI) jumped 16.4% in the fourth quarter compared to a year ago, and full-year NOI grew 7.5%. CAPREIT also boasts a strong occupancy rate, at 97.9%.

Management attributes this performance to its sales and marketing team’s ability to attract tenants and push through rent increases, while it controls costs through judicious property management.

CAPREIT’s portfolio is concentrated in Ontario, with 55% of the company’s suites and sites domiciled in the economically strong province. A substantial 18% of the property portfolio is situated in Quebec.

The REIT has definitely benefitted from the building frenzy in the Toronto condo market. As CEO Thomas Schwartz recently observed, “At the end of the day, as we learned in Toronto, condominium construction helps us because the small landlords buy condominiums and rent them out, create a market above the general market, which allows us to raise market rents.”

One of the reasons we favor CAPREIT over its fellow apartment landlord Northern Property REIT (TSX: NPR-U, OTC: NPRUF) is that the latter has significant exposure to the resource-rich province of Alberta.

Northern Property generated about 25% of its NOI by province from Alberta during 2014. That was a boon during the resource boom, but not so much since the commodities crash.

However, CAPREIT says the turmoil in the oil and gas sector could lead to some “interesting” and accretive deals in the province. At present, only 7.7% of its NOI is derived from properties in Alberta, and management hopes to take advantage of the downturn in the province to diversify its portfolio, while also acknowledging it could feel a pinch on its existing properties there.

As far as organic growth goes, in addition to wringing higher rents from existing properties, management says the REIT owns excess land that it’s looking to develop by securing residential rezonings.

CAPREIT currently trades at a premium to its peers. It has the third-highest price-to-FFO ratio on the S&P/TSX Capped REIT Index, at 16.4 compared to an average of 13.2 among the 15 REITs that comprise the index.

So where do things stand with Canada’s housing boom? Well, real estate markets are regional, so national data can sometimes obscure local trends.

Nevertheless, the country’s home prices were up 4.4% year over year in February, based on the Teranet-National Bank National Composite House Price Index, a weighted composite of price performance in 11 major cities across Canada.

That marks the fourth consecutive month of deceleration in growth, though it’s still above the three-year average of 4.1%.

February housing starts plunged to 156,300, well below the consensus forecast of 179,000 and also significantly lower than the 187,000 homes that began construction in January. Economists said that severe winter weather was largely to blame.

The trailing-year trend is somewhat less alarming, with an average of nearly 187,000 housing starts per month, compared to almost 195,000 per month over the trailing five-year period.

Despite the clearly slackening trend, economists expect the housing market to remain buoyant this year, though the worrisome economic backdrop will lead to divergences among provincial markets.

Thanks to the recent rate cut by the Bank of Canada, lower mortgage rates should support continued price increases. RBC forecasts home prices will rise by 3.4% this year, compared to 4.6% in 2014.

And that should give CAPREIT further fuel to continue its ascent. Canadian Apartment Properties REIT is a buy below USD25.