Ontario just announced a bailout program, selling it as a housing affordability measure. The province launched a $1.3 billion public-private partnership to buy stagnating developer inventory across Greater Toronto to convert into rentals. The plan clearly helps over-leveraged developers more than it helps with affordability. While intended to drum up investment, it may backfire by confirming market inefficiency. At least one Big Six bank has already warned investors it’s a bailout, and it’s not large enough to make a dent.
Ontario Announces $1.3B Partnership To Buy Unsold Toronto Condos
Ontario just announced a $1.3 billion partnership to turn roughly 2,200 unsold GTA condos into rental units. The province is using the new Building Ontario Fund (BOF) to buy already built condos. The BOF is the provincial counterpart to the controversial federal Canada Infrastructure Bank (CIB). Both partner with private investors to build profitable public infrastructure.
Investment firm High Art Capital is leading the deal, aiming to raise $1 billion in private investment, with Ontario’s BOF anchoring the deal with $300 million. The partnership will purchase blocks of at least 10 condos, built after January 1, 2023. Privately-run rental firms will manage them, and 25% of the units will be “affordable.”
We know what you’re thinking: this sounds like a bailout. Let’s review the definition: a bailout is financial support (loans, cash, asset purchases, etc.) to help a company or industry avoid a serious failure. It fits the definition, but we also have independent confirmation from a Big Six bank, so no need to guess.
“Cue the bailouts…” quips BMO senior economist Robert Kavcic, addressing the timing of tax reliefs shortly after the partnership was announced.
Ontario Also Rolling Out HST Exemptions For New Homes
Just a few days later, Ontario also announced plans for an HST exemption to help move unsold condos. It’s not just for first-time buyers, but investors are also eligible. The bill is set to lower costs for the investor-dominated market, but it also increases deficit liabilities. In other words, taxpayers will foot the bill for the diverted revenue.
“This is another move aimed at helping homebuilders clear out inventory. Recall an announcement earlier in the week that will see the Building Ontario Fund partner with the private sector to buy up unsold inventory for rental conversion,” explains Kavcic.
But how does it impact the market?
Ontario’s Toronto Real Estate Bailout Unlikely To Put A Dent In Pending Supply Glut
Quarterly supply of new GTHA condo apartments (index).
Source: Urbanation; Haver Analytics; BMO Capital Markets.
The plan adds demand, but is it enough to make a dent in the pending supply glut? Greater Toronto new home sales are coming in at some of the worst levels on record. At the same time, weak new home sales have allowed inventory to climb to rarely seen levels across the GTA.
“As it stands now, the new condo market is effectively dormant, with Urbanation reporting just 262 sales in Q4 (record low) against more than 20,000 unsold units. That’s almost 20 years of unsold inventory at the current sales pace,” warns Kavcic.
The problem is further compounded by the supply glut in the resale market, where condos trade for a steep discount. “There is also about 9 months of supply on the resale market, which might now be trading below replacement (building) cost anyway,” he adds.
Ultimately, absorbing 2,200 units barely dents a 20,000-unit supply glut. Sales are impossibly low, and the volume works out to just a few quarters of demand in a normal market. The province is deploying public capital to protect builder balance sheets, likely hoping it prevents a price correction. However, it’s a temporary liquidity lifeline that extends market inefficiencies. This reinforces the structural issues forming, like young adults fleeing to other provinces.
Everything fat boi touches turns to trash. Only conservative who manages to spend more than communists.
Ford is not a fiscal conservative, he is a social conservative. The difference is that, like his BFF Carney, he believes in govt funding for stuff the govt should not be involved in, mainly because they are terrible at it, like buying pipelines and EV plants.
They are both social conservatives, which is why sports, and all that fake nationalism stuff is all good for them. Its nonsense, since both have become wealthy via corruption, and therefore dont really care about any of that stuff.
Ford is a typical conservative – give out billions in corporate welfare while gutting social services.
Welfare is welfare and it isn’t the tax payers responsibility to bail out anyone.
Pretty good point. If the government needs to step in, it really only makes sense if the gov is picking up your loss. It’s a good deal for High Art, it’s not clear why the province would even try to drum up debt here.
They’re literally crowding their own public debt access, forcing the cost of borrowing higher. But that’s probably too complex for most politicians to understand.
Notice Ontario said it was mezzanine but didn’t explain who was first-order? LOL
wait for the prospectus…. does it matter. These PPP things are all govt backed, so in the end, the taxpayer is the guy stuck with the bag.
Agreed. The other big issue is the complete lack of transparency. If ON wants to bail out developers by buying up condos to rent, there is oversight. Now we are using private capital, raised at large expense, to fund purchases that will be managed by for profit management firms? So we are going to pay 1-2 months per year of rent to manage the rentals, pay private investors returns, pay High art commissions and costs to raise the capital? Why doesn’t the Govt of ON just lend whatever this is $300M at 5% and see if they can pay that back?
These ‘PPP’ infrastructure banks are little more than slush funds to pay off political debts. The federal one has accomplished absolutely nothing in 10y, and has cost a huge amount of money to administer. Why not just use the BDC to fund these projects with subsidized interest loans, or the govt to build this stuff on their own? This grey area is clearly only useful to hide corruption from public view.
The simple fact is that there was never a need for all these condos, just as there is no reason for Toronto to be a 9M person city. So the prices of condos are going to collapse, and a lot of people are going to get hurt, so why should we be bailing out those who profiteered on this for decades, and not the poor dupes who bought into this nonsense?
I would like to just confirm, there’s no hope for Ontario and I should just find a new province, right? It’s a completely different place from when I moved here, and it seems it’s run entirely by imbeciles.
Hard to understand why they are doing this, already lots of rental properties, its a bubble, let it pop….people will buy the properties and turn them into rentals quicker and cheaper than any Govt program can.
The number 1 reason for the problems are Government, high taxes, overspending, and mismanagement. The Federal Govt wont go bankrupt because they can print money, but the provinces and cities will. The Government is not working for the people, the people are working for the Government.
What else should we expect from the Developers’ Party of Ontario? Their entire focus has been on enriching themselves at the expense of the rest of the province. It started with the Hearn : 16 million for 40 acres of downtown Toronto waterfront real estate. And we were told it was a good deal for the Province…
So the question that we need to be asking is after literally hundreds of Billions thrown at the economy of ON since 2022, what is the ROI for the tax payer in Canada and in ON? This is a direct subsidy for developers sitting on an oversupply of condos, the same supply until the end of 2025 everyone from PM Carney to Ford said we needed to drop prices? However, prices are dropping all on their own?
Now with prices collapsing in the the GTA and ON generally, we need to bail out developers with a 13% HST rebate, and buy up a bunch of condos no one wants to rent out? If its such a good investment, why dont the developers rent them out?
Ontario has the worlds largest non sovereign govt debt. At 37-39% of GDP, the main question is can ON afford to bail out developers who have made record profits for 20y? Secondly, should they?
On that second question, the real issue hiding behind all of this is that soon there will be a consumer crisis in defaults. If Carney and ford have wasted all this money making ‘supply’ that no one wants, and now using tax dollars to prop up banks and developers, what possible relief will there be for consumers?
The feds, ON, BC are all on negative credit watches because they keep making terrible decisions like the funding of EV plants no one wanted, or building condos no one wants. When we need the govt to help regular Canadians, they wont have a nickel left, but then again, its been ON and Qc that keep these people in charge, and clearly that’s a disaster for everyone.
CANADA IS A DISASTER OF OVERSTRETCHED BOZOS
https://youtu.be/rWkxwi7Fx1I?si=kS3RENqGXt1eiNoD
CANADA IS A DISASTER OF OVERSTRETCHED BOZOS
Imagine being one of the people who bought into one of these pre-sale projects at grossly inflated prices only to be forced to close with zero or negative equity under threat of litigation. But don’t worry, the government has your back by bringing in a bunch of “affordable” units and RGI housing so now you can also benefit from the almost guaranteed increase in value that living in a public housing building is sure to bring.
I can’t sell my house. When will Fat Boy bail me out?
Exactly – This is going to hurt resale condo sellers.
Socialism for the rich, capitalism for the poor. The most depressing system.