The condo market in Ontario is currently going through a rough patch, with sales slowing down, inventories rising, and some investors having trouble making ends meet.
The condo market in Ontario is currently going through a rough patch, with sales slowing down, inventories rising, and some investors having trouble making ends meet. The downturn is most noticeable in the Greater Toronto Area (GTA), but it is also affecting many other municipalities. This raises a troubling question: is this the housing drought of the 1990s all over again?
The Canada Mortgage and Housing Corporation (CMHC) says that the Toronto area is going through a "perfect storm" of "declining sales, rising inventories, project cancellations, and a growing number of investors encountering financial distress due to falling prices." This situation reminds me of the late 1980s, when a real estate boom fueled by a lot of investor interest fell apart, causing average home prices to drop by almost 30% over the course of seven years. Steve Fudge, a sales representative for Bosley Real Estate, remembers that the market back then was characterized by "oversupply, lots of investors, and lots of huge losses," which put an end to new construction.
The CMHC also points out important differences that suggest today's situation, while difficult, may not be a complete repeat of the past. Today's market is better off because of stricter lending rules that stop speculative building that was common in the 1990s. For example, builders must pre-sell at least 70% of their units to get financing. Also, the economy as a whole is more stable because there are fewer mortgage defaults and the Bank of Canada is willing to change interest rates to deal with uncertainty in the economy.
The Issue of Supply and Price
Even though there are differences, the main problem is still that there is a mismatch between supply and demand, which is made worse by problems with planning and building. Scott Andison, the CEO of the Ontario Home Builders Association, says that only 40,000 homes are expected to be built in Ontario in 2025. This is a huge drop from the 90,000 to 95,000 homes that were built just a few years ago. This slowdown is made worse by the fact that there are about 37,000 new, empty homes, which is a "glut" mostly of condos that buyers don't want.
Andison says that the current inventory is the result of bad policy over the years. Because of provincial policies that encourage urban intensification, cities like Toronto relied heavily on condos as a solution. But politicians have only focused on small one- and one-plus-bedroom units, which don't meet the needs of growing families or older, active retirees who want to "age in place" instead of moving to a unit that isn't right for them.
Also, the high cost of a new home is a big turn-off. Builders are having a hard time with rising costs for materials like aluminum and copper because of tariffs and a confusing number of government fees. Andison says that the average new homebuyer pays an extra 36% in government fees, which include development charges, permits, and HST. This cost burden makes it impossible to buy new homes, no matter how big or nice they are.
The Bigger Market and the Quest for Answers
There are too many small condos, and it's not just in the GTA. Anthony Passarelli, a senior economist at CMHC, says that Vaughan, Mississauga, Hamilton, and Kitchener have seen a lot of condo construction in the last ten years. This is a "newer phenomenon" that makes it impossible to compare these markets directly to the 1990s, when their condo markets were just starting to grow. These areas now have to deal with their own problem of having too much inventory and not enough demand.
Building efficiency and cost are still very important issues across the country. The push for energy efficiency is always there, whether it's building new high-rises in the GTA or fixing up old homes. For example, there is still a strong demand for high-quality, high-performance building materials even in markets outside of Ontario that are cooling down. The Canadian Choice Windows company in Halifax, Nova Scotia, sells and installs energy-efficient windows. It works in a different regional market, but it meets the universal need to lower long-term home operating costs, which is becoming more important for both new homes and existing homes across Canada.
To bring Ontario's housing market back into balance, builders are changing their plans. For example, many members of the OHBA are turning unsold condo projects into rental units that are specifically designed for that purpose. The demand for government stimulus, like the promised federal and provincial cuts to the HST on new homes for first-time buyers, is also seen as important to "shock the market" and make houses cheaper right away. But the basic problem of supply—too few family-friendly homes at a price that is reasonable—will continue until the long approval processes are made easier and the high taxes on new construction are lowered.
