It always goes up—until it doesn’t. Once thought invincible, the Toronto condo market is in freefall and about to hit reality. Toronto CMA condo starts plunged further in July, and RBC economists see weak pre-construction sales pushing them even lower. The bank counters the claim that red tape is holding development back, instead attributing the bottleneck to building costs. That’s a cute narrative, but it conveniently ignores that existing condos are also facing weak sales at much lower prices.
Toronto New Condo Starts Have Plunged 68% From Peak, Set To Fall Even Lower On Weak Sales
Number of units, 12-month rolling sum.
Source: CMHC; Altus Group; RBC Economics.
Construction of new condo apartments came to an abrupt halt in recent months. The rolling 12-month sum of starts plunged to 10,583 units in July, down 60% from last year and 68% lower than the record high in mid-2023. Is it possible to go lower? It sure is, according to RBC economists.
The bank notes that condo pre-sales lead new condo starts by roughly 18 months in Toronto. The 12-month rolling sum of condo pre-sales fell to just 2,160 units in July, implying the potential for starts to collapse another 80% over the next 18 months.
Peak-to-trough, Toronto new condo starts are projected to fall over 93% by December 2026. That’s assuming last month was the low for condo pre-sales, which is a bold assumption.
Toronto’s Condo Supply Flood Is About To Enter The Chat
Apartments under construction across the Toronto CMA.
Source: CMHC; Better Dwelling.
Greater Toronto is still building a lot of condo apartments but the volume is collapsing fast. The seasonally adjusted annual rate (SAAR) of condos under construction hit 93,000 units in July, just 11% below the all-time high. “… which suggests completions are likely to stay relatively plentiful (albeit diminishing) in the near term,” says Robert Hogue, assistant chief economist at RBC.
The volume remains one of the highest on record, but policymakers are spending billions in tax dollars and the volume is sinking.
Ontario’s Red Tape Myth? RBC Argues Building Costs Are The Real Reason New Construction Is Plunging
Thousands of units, seasonally-adjusted and annualized, 6-month moving average.
Source: CMHC; Statistics Canada; RBC Economics.
Policymakers have made it a regular part of their routine to claim the problem is red tape and permits. RBC had a hard time seeing that issue, as permit approvals have remained very lofty. Ontario permits, with the bulk issued in and around Toronto CMA, indicate SAAR permits hit 87,000 units in July—significantly more than the 63,000 units started across the province. In fact, permits have significantly outpaced starts in the province going back to 2018, with the only exception being a brief period of ~6 months in late 2022-early 2023.
Hogue argues high building costs—especially development charges—are the real bottleneck to building, and the slowdown will worsen affordability once the immigration “pause” is lifted. Fair enough, but his conclusion glosses over how the Toronto condo market works.
Toronto’s new condo market isn’t driven by end users. A previous report from CIBC estimates 70% of Toronto pre-construction projects are sold to investors, primarily cash-flow negative speculators. As of last year, 81% of new condos delivered to investors lost money on the carrying costs. Even RBC’s executives warned that investors were replacing first-time buyers in their books, as end users become priced out of the market. If existing condo sales are abysmal due to affordability at an average price ~30% lower than new construction, how are end users suddenly able to afford more expensive units?
The assumption that “more building equals more affordability” is also somewhat primitive, ignoring two major points: investor-driven demand doesn’t translate into end-user affordability, and supply and demand also applies to all aspects of building—including land, labour, and materials. It’s counterintuitive, but stimulating excess building beyond capacity constraints acts in the same way as monetary stimulus, providing an inflationary effect. As previously explained, building more under these conditions tends to push costs—and home prices—even higher.
Policymakers tend to counter the above problems they create with the suggestion of raising capacity constraints. It’s a common issue that surfaces in all bubble economies, effectively arguing that the solution to save a housing-driven economy is further concentrating around housing. Ironically, this concentration amplifies vulnerability to economic shocks that make downturns much more painful.
LOL @ RBC. Yeah, build more supply. Ignore Toronto’s surge of unemployment and the fact no young person can find a job, which is the intended buyer of a first time condo market.
wait for the tsunami of mortgage renewals where the balance owing exceeds the current evaluation , who is going to take that hit ? 30 year amortization will now be 50 years and no end in site of perpetual payments or bail out. If you are in the stands watching this , good for you, if you are on the playing field with no ref in site you can still wave at those that knew.
That’s why the gov eliminated the renewal check. OSFI no longer verifying the loan to asset ratio, so the debt is all junk now. Though we knew that when the market stopped buying it and the gov started rolling it into its own debt to conceal any market criticism. But rest assured, this is a discreet bill we’re all paying.
That is a very interesting comment re the osfi noting that the osfi is federal and housing in the last several decades has been punted to the provinces even though for chartered banks they are federal but the dealer broker arms of chartered banks and others are once again under provincial remit and the capital markets was reaffirmed to be provincial. So quite an opaque mess
Further for co do property title media keeps glazing over the embedded automatic liens that backs all condo to owner billing’s eg maintenance fees and special assessments and the co do authority of Ontario only in recent years realized that the cpi contrition level dilligent boards has been using for reserve fund contributions was inaccurate and that something akin to the residential construction index would be more accurate. So no surprise that there are not just special assessments but serial special assessments and jumps in maintenance fees that owners of older condos are having to absorb. So it isn’t just mortgages for this type of property ownership to watch out for
Salient point about investors. The only people who can buy at these prices are:
– investors subsided with cheap loans to build purpose built rentals, since people don’t understand how loans work or the fact they’re topping up operating costs
– foreign investors that borrow in weaker currencies that will be devalued against the CAD. This is the main reason Chinese investors disappeared—they would have lost a buttload on USD hardening on the peg.
A few years back when I said this would happen, people laughed in my face. They thought Toronto was the centre of the universe.
I’d laugh now if it wasn’t all so messed up.
In recent market decline people need to understand that condo is not housing. It’s investment vehicle. 300 sq f unit is not what Canadian consumer wants. It was good to buy and live there till price rises and sell. Not anymore after interest, insurance, condo fees and property taxes outpaced mortgage or rent.
Canadian families need bigger space to call it housing.
Good news for condo builders is that single person will become most common because marriage is not a trend. So planning 20 years ahead and start bubble over will make sense again.
Time for market correction.
Maybe some will loose money, Investors and banks will cry, booboo.
Size of shoe apartments will bite back hard investors, as they are not intended for families and the resale will be even harder
The big question is what’s going to happen with all the condo Presales Closings over the next 18 months. As a condo Developer in Toronto in the early 90s, 80% of our ‘firm’ Closings defaulted on their Closings due to the 18% interest rate.
After Covid the crane count was 250 and most of those projects are at or approaching completion.
If enough of the units default on their Closings, that’s when you’ll see the weaker Developers defaulting on their Construction Loans and that’s when I see the Pension Funds and REITs buying the completed projects at 70c and turning them into rentals.
Those numbers will work as rentals due to the 70c purchase.
70c pays out the bank construction loans.
Considering that we desperately need more purpose-built rentals, this is all a good thing. Except for the numerous bag-holders.
The problem with the current purpose-built surge is:
1. It’s institutions framing it to their investors as a monopoly-style play—control the neighborhood, control the market.
2. Taxpayers are subsidizing this and taking on the risk—often with debt terms that exceed the actual usable life of these buildings.
Non-market stimulation always leads to a breaking addition and turns a bad market into a national crisis.
The costs of owning a. Condo go beyond a mortgage
Further the automatic liens that backs all condo to owner billing’s such as maintenance fees and special assessments is a iMovie legal arrangement for this type of property title ownership
Unfortunately the real costs of ongoing maintenance including for building envelope is only now recently surfacing hence the series of special assessments and jumps in maintenance fees
Because the condo act of o ratio does not give the condo authority of Ontario the legal remit to gather cost pressure data it was only recently after a voluntary survey that the cao discovered that the cpi most diligent condo
Boards had been using was not really the best anchor and that something closer to the residential construction index would be preferable for the reserve fund
(So who is it that is responsible for training board directors !)
Further the condo act also does not give the cao the legal authority to gather the data on greenhouse gas and water pressure that condo managers in Ontario now must collect for condos over a certain square footage and these managers have not been advised as to where to send this data either
Unfortunately starting with the nrcan green home grants and cmhc interest free loans mod and high rise condo owners have also been excluded from the many eco friend retrofit grants including agricultural building envelope items eg roofing and windows etc that would have helped soften the cost pressure behind the automatic liens and would have helped similarly for the timed by audit reserve fund inspections and building envelope retrofits now due for older condos
And this was even for condos that already had in unit heat pumps
A similar pattern has repeated for Ontarios home renovation savings program and while there are some items condo owners can now harvest structural items such as windows etc are still off limit
So the more generous offerings go to property title home owners who do t have to worry about out the automatic liens that is embedded in condo ownership
There appear to be many serious loose ends to ensnarl a condo owner de surprise costa of ownership beyond a mortgage and separate from the micro condo
And building new will only exacerbate the cost of material and labour specifically for ongoing structural maintenance more automatic liens is the due process mechanism for severing propertyntitle from the owner and is somewhat equivalent to the landlord tenant issues building more may reduce cost of entry but it does not address the cost of structural maintenance noting the date of many rental capped aging purpose built rentals which by the way architecturally often mimic the structures of condos
Regardless of the Condo investor point of view mainly espoused here, not enough 1.5 and 2 BDR units need to be built & marketed to small families. Studio & 1 BDR are not on demand.
Nobody is commenting that they built too many condos in recent years, or say in last 20 years… and now they slow down because of that? Don’t compare frantic development year with probably normal year. And it is very upsetting if development of any city, even province, is based on how many new condos are built.
The GTA is long overdue for a housing correction. This is good news for people who have not been able to afford a condo.
Hello? Where is the government of Canada to stop pre-sales to people who will never live here? Why is this even a discussion? Everyone is so GD. Greedy and so now KARMA steps in. Greedy Morons.
Are these Closings with these mortgages registered on title, or are they just Applications?
Work from home or from hubs and/or at distance have change the rules and it is there to stay. It is not uncommon to see workers moving to other cities such Kingston, Trenton , Hamilton, Ottawa , and Mtl to exercise their profession at distance oftentimes in a beautiful house with close access to schools, colleges , hospitals and near by lakes and ski stations., and the price tag is lower than a 800 square foot condo with no balcony
CONDOS ARE THE WORST INVESTMENT EVER
PAY RENT TO SAVE $ EVERY MONTH
NOTHING TO REALTORS
NOTHING TO STRATA FEES
NOTHING TO PROPERTY TAXES
NOTHING TO LEVIES
NOTHING TO SPECIAL ASSESSMENTS
NOTHING TO REPAIRS
NOTHING TO REPLACEMENTS ETC.
Anyone who can afford a mortgage and monthly fees can buy a condo. The problem is selling a condo. With increasing monthly fees special assessments and increasing insurance will you ever find a buyer. There a few fools left still buying, but even they will disappear. All you will soon be left with are buyers who can rent it out on the assumption they will make their outlay back, before the roof leaks and they can walk away. they will not be paying much 1 or 2 yrs rent max.