The evolution of the Toronto new condo market

The new condominium apartment market in the GTA has undergone a remarkable evolution over the past 25 years. There was a slow recovery from the early 1990s recession to record sales in 2007, and the market has proven to be very resilient amidst various challenges like the global financial crisis and COVID-19. Let’s delve into the key stages of its transformation and the current landscape it faces.

In the early 2010s, the new condo market in the GTA was a media darling, grabbing newspaper headlines daily. Sales were booming at that time, evident by the long lines at condo project openings. The term “Manhattanization” became a part of the Toronto vernacular, reflecting the growing enthusiasm for highrise living. Investors were the key group buying pre-construction condos. Yet some of them were cautious due to the aftermath of the late 1980s housing crash, which had left many burned from their attempts to flip contracts shortly after purchase, only to find values had plummeted. These investors (often speculators) were on the hook to close a suite worth less than they paid for it.

Lessons learned

However, lessons from the 1980s debacle led lenders to adopt a more conservative approach. Developers were now required to sell a substantial portion, at least 70 per cent, of the units before qualifying for construction financing.

As demand surged over the next three years into 2013, the new condo market responded with larger towers, extended construction timelines and higher price points. However, end-user buyers faced challenges such as the widening period between pre-construction and occupancy, steeper down payment requirements, and a new wrinkle – negative media coverage. No longer a media darling, articles in the major newspapers reminded readers of the previous housing issues in Ontario and expressed concerns about potential oversupply (they were very wrong).

The market continued to evolve over a relatively stagnant period in 2014 and 2015, and sales came back strong in the next few years. However, rising government fees, increased construction costs and the development of much larger buildings contributed to higher expenses for developers. Despite numerous cranes on the GTA skyline, demand continued to outpace supply.

When the pandemic hit, the landscape shifted once more. Lower interest rates needed to stimulate the economy, fueled housing demand and pushed pricing even further, resulting in “shrinkflation” as units got even smaller – in order to keep end-selling prices down and down payments reasonable. Other than the higher prices, another potential issue for hold-and-rent investors was the new competition from purpose-built rental apartment towers. Institutions, such as pensions, insurance companies and institutional capital, partnered with developers to cater to the growing demand for rental housing, especially from young professionals facing decreasing affordability.

Interest rate hikes

Over the last 15 months, 10 interest rate hikes have taken a major bite out of housing demand and increased carrying costs for developers. Looking ahead, the pace of new condo construction is likely to decline in the coming years. This projected decline in new home completions could lead to fewer units becoming available in the next four to five years. As a result, resale prices and rents are expected to rise in 2027 and 2028, creating favourable conditions for investors to re-enter the new pre-construction condo market.

However, forecasting the market in the current landscape is challenging, as there are both headwinds and tailwinds, including fairly good employment numbers, record-high immigration, restrictive zoning and ever-changing political policies that add layers of complexity.

The bottom line is that the Toronto new condo market has experienced significant growth, faced diverse challenges and displayed resilience throughout its evolution. From its early beginnings to the post-pandemic era, this market has continually adapted to changing circumstances. While uncertainties persist, a well-informed and strategic approach remains vital for investors and buyers seeking to thrive in this dynamic and evolving environment. Good luck.