RBC: Toronto and Vancouver Real Estate Construction “Significantly” Outside Norms

Canada’s largest bank is calling out the record amount of real estate development. RBC Economics released their July Canadian Housing Health Check. Economists from the bank only see two major elevated risks in major markets. Real estate affordability and lots of building remain the top concerns for markets.

Canadian Real Estate Markets Are Mostly Stable

Most indicators are looking normal according to economists from the bank. Resales, rental, interest rates, employment, demographics were all in line with historic standards. Generally these are all signs of a strong economy, with few signs pointing otherwise. One notable exception not mentioned in the report is the concentration of industry.

The business of buying, selling, and building homes is a major contributor to the economy. RBC doesn’t see any risk, but a large concentration in any industry is a risk by itself. Canada devotes an unusually large amount of its economy to residential investment. Although it doesn’t appear RBC economists are worried about it.

RBC - Toronto and Vancouver Real Estate Construction “Significantly” Outside Norms - Chart

Source: RBC Economics.

Canadian Real Estate Is Unaffordable

Surprising literally no one, RBC ranks affordability as the top concern for markets. Canadian real estate as a whole is marked as a significant risk in regards to affordability. Toronto and Vancouver do get a special mention though. Vancouver’s affordability even gets called a “crisis” in the notes. Calgary is the only big four market with affordability around historic levels.

Canada Is Building An Unusually High Number of Homes

The big story recently has been the record amount of home building across Canada. There’s more multi-family development than Canadians have seen in decades. Every major market is now outside of historic levels of building. Toronto, Vancouver, and Montreal are now “significantly” outside of normal ranges. Calgary wasn’t as bad, but still “modestly” outside of historic levels.

Even with the surge in building, RBC economists don’t believe there’s overbuilding. Calgary is the only market with multi-family inventory higher than usual. The bank does see potential long term absorption issues in Toronto, Vancouver, and Montreal. However, they believe there’s little risk near-term – whatever that means. Good thing people only keep condo apartments for a few weeks.

The report generally confirms the trends that have been observed over the past few years in regards to affordability and building. Affordability is out of reach for typical Canadians. Even the world renowned affordability of Montreal is quickly deteriorating. There’s also a lot of building, with a few questions about who’s going to live in all of these units. A significant portion of the demand is from investors. Those investors are about to get a lot of competition from purpose built rental developers.

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  • Ahmed 5 years ago

    Does anyone believe RBC’s building take when they mark it as a red alert, but then say it’s fine? 😂

    • Jin 5 years ago

      This is that looney Canadian logic where they confuse low risk with low risk to the developer. The developer has little risk since they pre-sold the inventory.

      That’s not the case for the investor that bought the condo unit. There was high immigration, and big investor demand for US housing in 2006… until there wasn’t.

  • Ethan Wu 5 years ago

    New NAFTA expected to trim off half a point from GDP going forward. That’s 1.3 – 0.5 = 0.8 real GDP forecast?

    Canada can’t afford a real estate slowdown now.


  • Jon snow 5 years ago

    Toronto housing market continuing to do well as I’ve been saying for months on here.

    Where are all the bears ?

    Borrowing costs to remain the same or low so expect buyers keep coming back in the market.

  • Zenity 5 years ago

    Hey, if you are young and have in demand skills you need to be responsible to your families future. The Canadian System is already designed to transfer wealth from young people to old by taxing your income at 30% – 50% to keep boomers alive. what remains of that you pay another 13% everytime you buy something. What little remains after you need to feed your family and buy overpriced houses from boomers who got it for 20% of what you are paying for. Time to either fight back or leave Canada this is modern day slavery.

    I don’t know why anyone with options would stay in Canada with these conditions.

    • Bob 5 years ago

      Boomers likely got it for <5% of what one is paying today, and certainly no more than 10%. They weren't competing with concentrated global wealth back then. The game is very, very different today.

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