What bubble? Renters underpin Toronto, Vancouver condo markets

Fears of unsold condos piling up in places like downtown Toronto have ebbed and flowed in recent years as cranes crowd the skyline.
Fears of unsold condos piling up in places like downtown Toronto have ebbed and flowed in recent years as cranes have crowded the skyline. Rene Johnston via Getty Images

So much for the foreign buyer thesis. The country’s government-backed home loan insurer released fresh figures on Tuesday that show the construction boom in new condominiums in Toronto, and to a lesser extent Vancouver, isn’t the product of international buyers looking to park cash in Canada in the form of real estate.

Foreign buyers are playing a role in the domestic market place, to be sure. But not a very big one, even in Vancouver and Toronto.

The Canada Mortgage and Housing Corp. said only a small minority of the condos for rent in most major urban areas have foreign owners, although some neighbourhoods in Vancouver, Toronto and Montreal are indeed higher.

The CMHC said its first survey of foreign ownership of condos for rent found a wide range within the 11 major markets that were tracked, from a high of 2.4 per cent in Toronto and 2.3 per cent in Vancouver to a low of only one-tenth of a percentage point in several cities.

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MORE: Low foreign ownership of Canadian condos, CMHC says

So who is underpinning the elevated number of condos that have sprouted up in Toronto and elsewhere in recent years? Renters.

That’s the opinion of BMO Capital Market. Economists at the bank said in a new research note that while new condos in Toronto and Vancouver are plentiful, so too are tenants.

Tight vacancies

BMO noted rental vacancy rates in Canada’s “two most closely-eyed” condo markets are lower this year versus 2013 – down to a “paltry” 0.7 per cent from 1.1 per cent in 2013 in Vancouver, and 1.3 per cent in in Toronto versus 1.8 per cent last year.

“So, yes there are a lot of condos being built and flipped onto the rental market, but they’re still all being filled,” BMO economist Robert Kavcic said.

Still, the CMHC raised concerns last month about the “elevated” number of condominiums under construction, notably in Toronto and Montreal.

MORE: Unsold condos risk piling up, Canada’s housing agency says

Construction boom

Condominiums accounted for more than one-third of all new home construction in Canada last year, according to the national housing agency, and more than half of the total in several of the country’s biggest cities.

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CMHC chief economist Bob Dugan said on Nov. 24 builders would be wise to ensure more units currently under construction find buyers before new towers and projects are started.

“Builders will need to hit the appropriate balance in channeling new demand between units that are currently under construction but not sold and units that are in the planning stage,” Dugan said.

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