How the Crisis in the Toronto Condo Market is Affecting Housing Affordability

Is the Toronto condo market worsening housing affordability in North America’s fourth-largest city? It is no secret that Toronto maintains one of the world’s most expensive housing markets, with the average selling price for a home in the Ontario capital between $750,000 and $1.6 million.

If you have been scanning the local news headlines or combing through housing market data, it would be observed that the Toronto condo market is grinding to a screeching halt. CTV News reported on a Toronto condo that sold at a $320,000 loss. The Globe and Mail noted that “just over 80 per cent of new condo investors in Toronto are losing money on their rentals.” The Financial Post purported that the Toronto condo market is facing its biggest test since the 1990s recession.

Are these exaggerated headlines? According to the Toronto Regional Real Estate Board (TRREB), Toronto condo sales tumbled 1.3 per cent year-over-year in July, and the average price slipped 0.5 per cent year-over-year to $748,330.

The figures would suggest that Toronto condo prices are beginning to fall. However, Jason Mercer, the TRREB chief market analyst, warned that the overall real estate market will experience “a resumption of price growth.”

“As more buyers take advantage of more affordable mortgage payments in the months ahead, they will benefit from the substantial build-up in inventory. This will initially keep home prices relatively flat,” he said. “However, as inventory is absorbed, market conditions will tighten in the absence of a large-scale increase in home completions, ultimately leading to a resumption of price growth.”

Indeed, the Toronto condo crisis is in recession territory at levels unseen in three decades. The latest trends have been fuelled by inflationary pressures – labour shortages, supply chain snafus, and material issues – and elevated interest rates.

Condo investors are reportedly losing money on their investments, as 82 per cent of those who purchased properties in 2023 are facing negative cash flows. A blend of elevated interest rates, high housing costs, and poor condo sales have been initiating a trickle-down effect on Toronto condo inventories and housing affordability. And, of course, new investors are apprehensive about hitting the open market.

Additionally, rising construction costs amid above-trend inflation indicate that future supply is likely to slow down, worsening housing affordability conditions in the Greater Toronto Area (GTA) at a time when the city endures the highest rate of unaffordable housing in the nation, according to a Statistics Canada study published in 2021.

The proportion of Canadian households who own a property has been consistently declining, and the growth in renter households has more than doubled in owner households. A much larger share of newer builds are now rentals, while unaffordable housing rates are highest in the downtown area.

It is unclear if the Bank of Canada’s (BoC) pivoting on monetary policy and initiating the next easing cycle will be sufficient to improve the Toronto condo market’s situation. Despite gradually shifting into a buyer’s market, higher prices keep too many prospective homebuyers on the sidelines.

The Future of the Toronto Condo Market

Industry experts assert that the biggest housing affordability challenges are threefold. The real estate development sector has concentrated on housing types that would generate the fastest profits, and builders have contended with a mountain of regulatory red tape. While the demand for three-bedroom units would be high, the costs would be out of reach for many Toronto families.

Ultimately, these developments have resulted in over-investment in the high-rise condominium sector, which contains bachelor apartments, one-bedroom units, and one-and-one suites. However, the small and shrinking condo units at significant prices are no longer what buyers want. This has resulted in buyers pulling back from investment in condos after witnessing their peers record sizeable losses. Critics note that the focus on condos has resulted in unproductive development and a shortage of housing that is needed, which has pushed housing prices even higher.

In the second quarter of 2024, fewer than 1,700 condos were sold in the Greater Toronto and Hamilton Area (GTHA), representing a 66 per cent plunge from the previous year. This would, in theory, bolster rental supply, but prices have not slipped in a meaningful way.

According to Rentals.ca’s monthly Rent Report, the average price for a one-bedroom apartment in Toronto dipped 0.1 per cent in July to $2,443. A two-bedroom unit was rented for $3,198, unchanged from June. With Toronto’s population growing, the demand for rentals has been increasing, creating unaffordable circumstances. This has triggered a knock-on effect in the broader Toronto housing market.

Are Condos A Priority for Policymakers?

So, is there a lack of interest in condo buying? Many trends could be forming. Some homebuyers might be taking a wait-and-see approach, planning for lower interest rates and a decline in condo prices that might help bring some balance back to the Toronto condo market. A $750,000 one-bedroom unit for a family of four might not be desirable for many households. Some could be monitoring economic conditions.

Addressing the Toronto real estate market’s affordability crisis has been considered a significant priority for all levels of government. It makes sense, too, as an out-of-control housing market can impact the region’s economic stability, growth, and attractiveness. Industry and governments have presented a series of tools to alleviate the situation. One side says less red tape, while the other wants to alter tax policy. Anything will be welcomed for families feeling the pressure of high housing costs.