Canada’s largest real estate market runs on speculation, not housing demand. That’s the core message from the Bank of Canada’s (BoC) latest report, outlining the mechanics of a Ponzi scheme, without dropping the P-bomb. They warn that falling investor returns, driven by higher interest rates, now threaten builder models, suggesting these homes aren’t viable as homes—only as financial instruments.
Toronto Condo Pre-Construction Sales Fall To The Lowest Level Since 1991
Toronto condo pre-construction sales, annualized quarterly average.
Source: Urbanation; BoC; Better Dwelling
The Toronto real estate market isn’t just cooling—it’s broken. The region’s developers sold just 1,599 new condos in 2025, marking the worst year since 1991. For those new around here, that was the start of the country’s largest real estate crash to date.
Declining sales weren’t due to a lack of inventory to buy. Developers are sitting on 3,975 completed and unsold new homes in December, up 56.8% from a year prior. Inventory is at its highest point in almost a decade, a level only seen twice before: during the early 1990s crash, and after the 2014 oil slump that ended with the foreign buyer mini-bubble and Toronto being revealed as a global money laundering capital. Who knew that was the healthiest the market would be for the next decade?
BoC Explains Toronto New Condo Sales, Describes Textbook Ponzi
The BoC attributes Toronto’s condo boom to “strong population growth, low interest rates and robust investor demand,” but warns that times have changed. Condos no longer deliver the short-term returns as population growth slows and rates climb.
Most condos are pre-construction sales, helping to de-risk project financing. The BoC notes that banks require 70% of units sold before issuing construction loans. As a result, the industry courts investors who are attracted to the high leverage returns that can be made with just 20% down, often planning to flip units before completion to avoid needing the full financing.
That leverage works both ways, and the central bank notes the math turned against the strategy. The report explicitly states, “Toronto’s condos are no longer providing substantial returns for short-term investors,” citing rising rates and slowing population growth.
The BoC admits this environment is “challenging the business model of condo builders,” effectively conceding that the region’s model was reliant on short-term speculation. When “returns” evaporated, so did the ability to build.
Canada’s central bank is effectively stating that the “business model” of building housing in Toronto is dependent on investors making “substantial returns,” not end-users needing housing. An investment that depends on incoming new money to validate debt, rather than income from the asset itself, is the textbook definition of Ponzi finance.
“Ponzi Finance units must borrow or sell assets to pay interest… relying on the expectation that the appreciation of asset prices will exceed the interest rate.” — Hyman Minsky, The Financial Instability Hypothesis
That’s right. I kept a textbook for over 20 years for this exact moment.
BoC Blames Slowdown On Population Growth, Ignores Data
Channelling the energy of OJ pledging to find the real killer, the BoC attributes the slowdown to “easing population growth” and rising interest rates. Slower immigration is equated with the drop in demand, while rising interest rates throttled credit. It’s a convenient supply and demand narrative, and sounds very logical. That is, as long as one doesn’t look at the actual data available.
Toronto New Condo Prices Peaked Before Population Surge
Toronto new condo prices.
Source: Altus Group.
Toronto real estate peaked in Q1 2022, when interest rates were just 0.25%. Canada was just recovering from record-low population growth after the pandemic-induced lockdown. That was nearly a full year before the historic surge of 2023, when Canada added 1.2 million people. If demand were the primary driver of home prices, 2023 should have been the most expensive in history. Instead, prices collapsed as the population climbed to record highs.
Prices peaked before the first rate hike. Rate hikes can’t throttle credit before they’re made, but the threat can deflate speculative expectations fast. Investors made up over 70% of buyers, with Big Six banks holding the mortgages on most of the cashflow negative condos. It doesn’t make sense in the context of the BoC’s argument, but nice try.
The BoC is mourning the loss of speculative capital after outlining a Ponzi scheme. Starts may slow in the short-term, but a market that caters to speculators isn’t creating housing. It’s creating financial instruments that people occasionally live in. Real supply only returns when land values better reflect the incomes of the people living on that land, not a return speculators find attractive only because of a credit bubble.
This the same BoC where the Governor said in 2021, when there was no population growth, that we “needed the growth” from real estate speculation?
How do you transition from an economy dependent on real estate speculation to one based on productive growth without causing severe economic pain? There is no other option other than to save the market and let the value of money erode (even if not reflected in inflation).
“How do you help a criminal without letting him commit a little crime?”
Absolutely correct. The problem for the bank of Canada, Carney’s government, and the GTA elites is simple. The prices of housing have to fall. We need that wasted capital spent speculating on ‘housing casino’ to be redeployed into working capital again.
The choices are tough. Either prices have to fall, substantially (like 50-70% in the GTA) to reflect the actual incomes in that metro area. Now there are three ways to do this: 1. Let banks destroy the lives of millions of people by foreclosing on them, without any sort of govt intervention. 2. We can pretend that this supply / demand fiction is accurate and open the flood gates to immigration and prop up developers and banks with tax dollars. This will continue the standard of living declines and falling economic output began in 2015. 3. The government can acknowledge that they colluded with the banks to create a ponzi scheme, and that they will now work to remove that unjust enrichment from the banks and themselves, using the CHMC, banking regulations to modify mortgages to reduce the principals and make housing affordable. This is WILL NOT be AVAILABLE to investors.
Now so far we know the Trudeau/Carny govt has chosen (as their main economic ‘plan’) to do number 2, and now number 1 is happening at the same time. The inane comments by Trudeau, Carney and Freeland about protecting real estate values as ‘savings’ demonstrate that they are either as dumb as they appear, or just dishonest. The obvious, and most reasonable approach is #3. This would protect the middle class (which barely exists in Canada at present) and hold those responsible accountable.
Our big 6 banks have made massive profits for more than a decade now, and it behooves the govt to end that, and require some compensation to those who paid for it all.
However, the chances of Carney, or the Liberals doing any of this is pretty much nil. So its likely going to be be #1, unless we can find a new PM fast, Canada is in for a really bad ride down, particularly the GTA. This is not necessarily a bad thing, since it will force this bizarre fascination with residential real estate speculation back where it belongs. The other major issue facing Canada is that with CUSMA coming up for renegotiation, the big 6 bank cartels, and noted major money launderers for those who think they are ‘safe’, should face margin pressure or external competition. Canada’s banks operate in Canada with margins 400-1300% higher than any of their global competitors. They also have lower capital requirements, so they are actually the opposite of safe.
When the ‘business model’ for building essential shelter fails without speculation, our housing strategy has been fundamentally wrong.
If you call the Trudeau carney strategy a business model, you are absolutely right. This has been a wealth transfer device, and in no way designed to provide housing. Housing security for a median income Canadian family has never been as insecure as it is today, in Canada’s history. It is absolutely a ponzi scheme, and is in the process of destroying the economy of Canada.
So despite the fact that less than 14M people lived in places that benefited from this ponzi scheme, we will all now pay for it. The end result will be a shift from the GTA/Ottawa west for head offices (already happening), population, and investment.
Stats Canada noted (begrudgingly) that AB will exceed BCs population in the 2030s, and by 2050 be the second largest population province. Canada is facing a generational shift, as was seen in 1976. The GTA cannot support 8M people, just as Detroit, Cleveland, Buffalo, Chicago, Milwakee are all losing population since 2000, The GTA doesnt make any sense to have grown at double digits for decades.
It’s not a Ponzi scheme. It was a leveraged investment model that worked perfectly in a low-rate environment. The fundamentals changed, and now there are losers.
Absolutely correct. Also, as is usual with Better Dwelling, many conspicuous factors are ignored to support weak analysis. The covid pandemic was also a major driver of real estate prices through the peak price period mentioned.
So weird how COVID didn’t impact the existing housing market in Toronto, just the new condos that wouldn’t be build for another 3 years.
Damn better dwelling! How dare they focus on the data they’re discussing, and not the piece that if you ignore the rest of it, makes sense because it’s what developers repeated daily.
A ponzi scheme, is defined as a system where returns are funded by new investors putting ever higher amounts into a vastly over valued (and typically not market priced) investment.
The problem is that real estate is almost always, by definition, a ponzi scheme. Prices are determined (in aggregate) not by any sort of market informed source, but by banks and appraisers. So, for example, if banks decide that a property is worth 200k, the odds of finding a buyer that pays 400k for it are pretty much zero.
The problem is, banks have a major conflict of interest here, since their profits are driven by lending higher and higher amounts on the same properties. So when they get a compliant govt, like the dim witted Liberals of the last 10y., they are able to effectively ‘make the market’ setting prices to drive profits, not manage risks.
Once people get used to 20-30% annual returns, the CRA doesn’t bother to tax that, and realtors, trades and developers are all making money, it look like a viable economic activity. ITS NOT. Just as ponzi schemes require lying to everyone, this fiction that a condo in Toronto is ‘worth $1M, up from 300K 6ys before is as bad as anything done by madoff.
The most pathetic bit is watching an economist (Carney) spew out nonsense about inflation and housing prices being caused by external economic forces. Day one in Macro Economics, 2nd year, the topic of absolute relationship between monetary policy, inflation, and housing is established. One has to wonder how Carney could have run the BoC or BoE without understanding what is going on.
Amd that is not even covering the cost of structural maintenance and the embedded automatic liens that can trigger a de facto eviction for an owner dweller hit by a special assessment cost shock. Amd too
Low developer contributions with out a regularly mandate for “adequate”which is also open to debate. Which may explain why many cost mitigations side step condos partially or wholely eg exp retrofits despite the encouragement t for seniors to downsize and the condo being deemed a lower rung on the property ladder as an entry point
Quite the mess in the midsts of an acknowledged housing
affordability crisis so why was this allowed! Small wonder the scathing g report of the author general in flaws in the condo act that undermine consumer protection which should include ow ers not just prospective purchasers on product can be moved
LOL. If the model doesn’t fit, you must acquit.
‘no longer providing substantial returns for short-term investors.’ Good.
Sucks that the bailout already started, but good luck explaining to Brantford Boomer why it’s not good to drive up bond yields for everyone in order to save housing wealth that didn’t exist two years prior.
FOR EVERY IRRESPONSIBLE CANADIAN POLITICIAN AND BEAURACRAT IN CANADA
ENJOY THE WORST HOUSING CRASH EVER
INVEST IN USA HOUSING AND FARMLAND
340 MILLION AMERICANS ARE SMARTER THAN ANY OF YOU
I, at least, want to buy you a keyboard with a functioning CAPS lock.
so how is Florida doing lately? Punta Gorda for example?
*snort laughs* Yes you’re smart with your pedo rapist child trafficking president, don’t forget not to long ago you were in a housing bubble ,and you’re headed for something worse still this time.
The population density in Canada as of 2021 per square kilometer is 4.2. There’s only one way to make the cheapest land in the world the most expensive: government regulations. As Rene Levesque said way back: “ Canada is ill governed and over governed.” It’s a shame English Canada got taken to the cleaners by Pierre Trudeau…
It will be interesting to see how many years it requires before there is a major uptick in condo construction. Three? Five? More?
A bit of greed mixed in. Plus units just kept getting smaller and smaller. It’s not really a home when they build them so small. But they were being referenced as family dwellings. The government wanted to slow housing sales to bring costs down to make homes more affordable. Unfortunately, they created a negative equity situation for a great number of home owners.
Ironically while condo s pay hst. On construction material for maintenance while owners fund these bills bills. Policy drafters use the corporate status of the condo hcc as an excuse not to provide grants etc to mitigate the costs of of such ownership arguing the hcc has so many pockets it can pick versus an individual non condo household ignoring the share magnitude of many special assessment as calculated per the unit owners many who are not landlords and can’t write off such expenses
And further while in Ontario the hst is part of the bill the government is now waiving the hst for new home buyers for lower o. The property ladder housing. Which essentially if they purchase a co do as an entry are ending up in the same money pit trap. As are those on fixed incomes where the cost pressure of construction material and labour has far outpaced their incomes including the cost of building envelope and common element maintenance even as developers for these new projects are u Derrida f the reserve funds they hand over so not that long after taking owner ship the newbie co do owner gets their first real taste of the real cost jumps in maintenance as a condo owner on top of their mortgage which they just managed to qualify for
And the automatic liens unlike housing further up the property ladder makes such bills arbitrary
Understandably both the ministry of public business service delivery and procurement and the co do authority are more than a bit skittish about having the condo act updated to force the condo authority to regularly officially gather the real cost pressure of condo o warship for retention not just purchase and are very reluctant to be forced to share this data to policy drafters outside co do land so these policy drafter would have to note that this commercial emtity is funded by many little owner wallets who might and do find the amounts billed to their units especially for special assessments overwhelming especially when also sidelined from grants low rise and non condo dwelling fa are harvesting who dont have to worry about the automatic liens
While
Boards struggle even the most diligent with inaccurate projections set out on reserve funds that did not even begin to take into account the real cost pressures condos now are trying to swallow even ones that silently followed the recommendations of reserve funds benchmarked to cpi rather than building construction data which keeps evolving more quickly than even a three year cycle of such benchmarks
Were the oversight bodies to come clean likely this would destroy the condo market and not just the current crisis in new builds and policy drafters would have to come clean about their own deficiencies and excuses for excluding such homeowners from grants that favour what the nimby
Low rise approve and how cash starved owners of this form of housing not deemed social but private market are due to flawed policy and incomplete data used to tackle our housing affordability crisis. Such admissions would not be “good for business”
Not so funny irony the same owners of the lower rung property ladder pay the hat for structural maintenance for their building as backed by the automatic liens While Boards and this hst funding goes into a general pool that is used to waive the cost of first time home buyers who if they buy a condo will end up repaying the government even as their dwellings are sidelined from the generous grants other dwellings eg low rise and non Condo owners can harvest if they wish to offset eco retrofits fits while condo owners are not helped to alleviate energy poverty Quite the scheme
The growing pace of special assessments would indicate in a normal corporate context that such bailouts were a big hint of the insolvency of the corporation
Add in the carve outs of condo corporation from the generous grants and even interest free loans for non condos and low rise one begins to wonder if our governments are actually trying to starve the grand condo experiment so it will die taking all the hapless owners down with it