Bank of Canada Warns There’s A Big Glut of Tiny Condos, Slashes Forecast

Canada’s central bank is bullish on housing investment—though its latest report makes it unclear why. The Bank of Canada (BoC) surprised no one by leaving its overnight rate unchanged, but the accompanying Monetary Policy Report (MPR) did suggest residential investment will pick up. The BoC didn’t support that claim, but instead cited a number of headwinds and downgraded its forecast for the current year. They know what picking up means, right? 

BoC Sees Housing Investment Climbing, Though It’s Not Clear Why

The BoC believes residential investment—the share of GDP generated by new housing and major renovations—picked up in Q2 2026. Official data is still weeks away, but the BoC has a gut feeling it significantly improved. Though it’s really not clear why. 

The central bank slashed its 2026 forecast by 0.1 points, with housing investment now expected to cut 0.2 points from real GDP. 

If one reached for a sign of industry picking up, only shelter inflation supports it. The BoC notes “rent inflation remains elevated at 3.5%,” but offered few other details. The only thing we can think of is that’s above the 3.0% upper tolerance band of inflation. That would make it attractive to yield-chasing investors, like institutions building for-profit, purpose-built rentals with the help of low-cost, taxpayer-subsidized financing.  

The rest of the Bank’s analysis points to more trouble in the already thin condo pipeline. 

Canada’s Big Glut of Tiny Condos That No One Wants

The central bank warned the market is struggling to absorb an inventory glut in key markets. They specifically point to “a large stock of unsold small condominiums in Toronto and Vancouver” as a concern. Despite a substantial correction, affordability remains stretched and the motivating pressure for investors appears to have disappeared. 

Despite their forecast of rising residential investment, they note concerns regarding growth. “…[Investment is] restrained by slow population growth, affordability challenges in some housing markets,” notes the report. 

Canadian Home Buyers Remain Spooked, On The Sidelines

The BoC doesn’t see households being whipped up into a frenzy anytime soon. “Households are also expected to remain cautious about home purchases given the uncertain economic environment,” explains the BoC. 

Home price inflation for “both housing-related services and rent” is slowing. They attribute this largely to weaker demand from slower population growth, a trend that directly contradicts their own optimistic read.    

“Shelter price inflation is expected to ease further in the near term, reflecting a sluggish housing market and weak growth in rents,” says the BoC.  

In other words, the BoC almost exclusively cited headwinds that will reduce demand pressures. However, they see investment in housing picking up soon. Unless they have some reason to believe the scale of bailouts, like those Ontario and BC are putting together, is larger than initially proposed, it’s unclear what supports the growth they’re referencing.  

This isn’t the first time the BoC attempted to present an optimistic tone regarding real estate, only to present conflicting data. A few months back, researchers from the central bank analyzed Toronto real estate. While they cited all of the narratives policymakers love—rapid population growth and demand—they end up describing pricing mechanics involving neither. Instead, their analysis effectively produces a description that could double as the definition of a Ponzi scheme. 

What we do know is they consistently ignore the role of credit—despite Canada’s unique approach to CPI that circularly prices the cost of debt using the cost of debt.