Toronto Condo Boom

Toronto’s Condo Boom, and Municipal “Intensification” Policies

The condominium boom in Toronto is no secret. In fact, the exponential increase of condo construction projects in the GTA has been on the radar of local and national market analysts for quite some time, but only now is it receiving global attention. And there’s good reason for it. According to RealNet’s GTA new-home market results for June, marking the halfway point for 2013, there was a record 251 new condo projects being built across the city, totalling 64,670 units. Roughly twice the number of construction projects underway in New York City, a city with twice the population, putting Toronto 10th on the global list of high-rise cities, according to Simon Kent of The Toronto Sun.

Several reasons are cited by various sources to account for this boom. There is general consensus, however, that the proliferation of condominium units in the city was a deliberate effort, spurred on by the municipal and provincial governments to “intensify” both high-rise and low-rise development throughout the GTA. These “intensification policies” enacted back in 2006, some believe, were diabolically introduced by the government to take advantage of existing land-transfer tax laws, which were (and still are) a huge cash cow for the city. Others point to more historical, and less conspiratorial factors to attribute for the condo boom, such as the fact that the province of Ontario designated much of the undeveloped land northeast of Toronto as a “greenbelt,” forcing many developers to purchase former industrial land in the city’s downtown core.

Some see this condo construction boom as a threat to the overall housing market, while others see it as a huge success, the result of sound intensification policies in action. And there are arguments on both sides of the coin. The Bank of Canada has publicly warned that the Toronto housing market in general is both “overpriced” and “overbuilt,” prompting them to predict that the growing inventory of unsold condos in Toronto could eventually create “the risk of an abrupt correction in prices and residential construction activity.” When you break it down to its core, the fundamental concern plaguing most market analysts is whether there is enough demand to balance out the proliferation of available units, all while median condo prices continue to soar, with estimates of up to a 25% increase in price since 2009.

The fact of the matter is, as George Carras of the Toronto Star argues in an article released in June of this year, the issue of demand for the units being built is moot, because a bulk of the units under construction have already been pre-sold. Property management firms implement extensive pre-sales programs in order to ensure that such projects are financially feasible to undertake in the first place, normally requiring a unit acquisition rate of over 80% in order to proceed with construction (with roughly a 20% down payment required for each unit). Ian Austen of The New York Times, reinforces this claim, arguing that Canadian banks keep a tight leash on condo developers, requiring them to sell 70 to 80% of units in any project in advance before construction money is lent. Urbanation, a firm that specializes in tracking the Toronto condo industry for developers and lenders, estimates that 89% of the units now being built in Toronto are already sold.

According to Susan Pigg of the Toronto Star, any discernable decline in condo sales because of high prices and overstocked inventory is likely to level out, or even improve, as a result of city-wide population growth and improved employment opportunities that will likely increase the demand for condos, as stated in a report released by the Conference Board of Canada back in August of this year. “As condo starts near past averages and inventories edge closer to demand, we are seeing the condo market stabilize both in terms of the price of existing units and the volume of new construction,” said Robin Wiebe, senior economist at the Centre for Municipal Studies at The Conference Board of Canada, in a statement.