The Toronto condo bust that wasn’t

The Bank of Canada warned in 2013 of “the risk of an abrupt correction in prices and residential construction activity" amid Toronto's condo boom.
The Ontario government is cracking down on 'unethical' developers with heightened penalties. Credit/GETTY IMAGES

Whatever happened to Toronto’s condo bubble? The average price of a condominium in the city popped more than 17 per cent in February compared to what the same unit would have sold for just one year earlier.

Perhaps more important than the eye-catching jump is what it signifies. Or maybe what it doesn’t.

The rising trendline for condo prices may well be the diametric opposite of what many market watchers were warning it could look like not so long ago, as countless cranes busily infilled Toronto’s skyline with gleaming residential tower after residential tower stuffed with tens of thousands of 700-square-foot condo units.

Yet despite the dire warnings of overbuilding, the market has held firm and prices have continued to grow — in the case of February, strongly.

“Condo prices [have] posted respectable gains despite earlier concerns about the risk that the condo construction boom might flood the market,” RBC economists said in a Feb. 29 report on housing affordability.
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A surge of condos has indeed hit Toronto’s property market, RBC chief economist Craig Wright and senior economist Robert Hogue say, but it has been “readily absorbed for the most part.”

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The current outcome was far from a certainty a couple of years ago, when experts openly fretted about an historic surge in construction activity ending badly.

In June 2013 – as 55,000 or so condos were rising from the ground – the Bank of Canada, whose primary job is to safeguard financial stability, warned of a potential bubble forming in Toronto’s hot property market, fueled by speculative investors.

Speculators had “boosted construction in the condominium market beyond demographic requirements,” the central bank said, publicly warning over “the risk of an abrupt correction in prices and residential construction activity.”

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But since then, the market has proven to be nothing but remarkably sturdy. Benchmark prices across greater Toronto area climbed nine per cent in the two and-a-half years between the Bank’s comments and the start of 2016.

That contrasts with the more than 25 per cent surge in detached two-storey homes over the same time, a housing type whose rapid inflation now leaves it looking like the one most susceptible to a potential price correction.

In sharp contrast to the detached market, condo affordability is “comparatively stable,” RBC’s Wright and Hogue said.


The sources of stability – read: reasons why the record glut of new condos hasn’t triggered a crash— are numerous, experts suggest. To start, the thought of long commutes on ever-more congested roadways continues to push more millennials into downtown living.

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The long-term demographic force of foreign immigration that’s underpinned the Toronto region’s economic growth continues to do the same for housing demand. And with prices for single-family homes climbing out of reach for an increasing share of buyers, the inevitable trickle-down effect is boosting condo sales.

MORE: Job seekers are flocking to B.C. and Ontario again

More recently, new mortgage rules implemented last month have made purchasing more expensive homes (those listed above $500,000) more difficult for first-time buyers, providing another support for the condo market.

Finally, the tide of workers that poured into energy-producing regions when jobs were plentiful is now sharply reversing course. Workers are turning to Southern Ontario’s bigger and more diversified economy to find jobs.

The exodus from Alberta, Saskatchewan and parts of Altantic Canada has bolstered an already tight regional rental market, experts say, making finding tenants to fill condos an easier chore for landlords and investors.


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