condo market supply crisis on the horizon?

As of current, ample data exists that shows a downturn in the condo market in Toronto and the GTA. However, there are clear indications that we are potentially looking at a supply crisis in the coming years.

I had written about the downward trend in the condo market and the slight fluctuations we have been seeing in the spring of this year in my last two blog posts (second post). Now there are clear signs of an impending supply crisis, including a retreat by developers (construction lags), a drop in housing starts, high interest rates (increased development risk), developers going insolvent and most importantly, long construction timelines.

Firstly, let’s talk about the construction timelines. Even if developers begin launching new projects today, most high-rise condos take 3-7 years to complete in Canada. Contrast this with the UAE and Dubai, where it’s significantly shorter that that (a maximum of 2 to 4 years for most projects). This is exacerbated by municipal bureaucracy and development charges, with still existent zoning battles, rising municipal fees and long approval timelines that I am still witnessing. This is exacerbated by the fact that we still have labour shortages, and lowering immigration targets is only going to increase the labour shortage going forward.

Further, I had also previously written about the sharp drop in new housing starts, and data showing Ontario falling severely behind. Similarly, I also wrote about developer receiverships seeing a sharp spike in Toronto. All this shows that fewer units will be completed 2-5 years from now. This indicates that we are looking at a period around 2027-2028 when we have a serious supply crunch due to less developments, and any new developments would only take another 3-7 years to be completed at that point.

Thus, all of this leads me to make the educated prediction that we are looking at a serious future gap in the pipeline. Even if we reduce the long approval timelines, make zoning easier and lower municipal fees, we are still looking at labour shortages and a current market where financing costs for developers have soared with pre-sales lower as well, making many builders pause launches because the margins do not justify the risks in any way.

Thus, in terms of investments, this means that buyers have much negotiating power right now, with inventory being high, sellers more flexible and prices quite subdued. As this oversupply today could flip into tomorrow’s shortage, it presents a very good investment opportunity.

Given the continuously evolving nature of the real estate market, the decision to buy or sell real estate should take into careful consideration several factors and it is crucial to carefully evaluate your financial situation, long-term goals and local market conditions before making a decision. As a real estate professional with over 20+ years of experience in the industry, I have first-hand witnessed the housing affordability crisis in my every-day practice. In such a market, it essential to get the right advice. If you need expert guidance for your buying and selling needs, please don’t hesitate to reach out to me.