Rising interest rates and high prices slow pre-construction condo sales, impacting future housing supply
Statistics Canada has highlighted growing concerns surrounding the condominium apartment market in major cities like Toronto and Vancouver.
Prices for these units remain near their pandemic-era peak, despite low sales and rising inventory levels. First-time homebuyers, grappling with higher interest rates, face difficulties as high prices and small unit sizes deter long-term living.
Media reports have shown that investors are increasingly cautious about pre-construction condominium purchases. Many investors face negative cash flow, with mortgage payments exceeding rental income, even as rents rise.
Additionally, some investors are sceptical about future price growth due to higher interest rates, leading to a decline in pre-construction sales. This has caused developers to delay or cancel projects, potentially limiting future housing supply.
The Canadian Housing Statistics Program (CHSP) has released data on investors and investment properties for 2022 across five provinces: Nova Scotia, New Brunswick, Ontario, Manitoba, and British Columbia.
These data provide insights into the role of investors in the condominium apartment markets of Toronto and Vancouver.
In 2022, investors owned 38.9 percent of condominium apartments in the Toronto census metropolitan area (CMA), and 34.2 percent in Vancouver. Investors often purchase pre-construction units with the intent to profit from either renting or selling them.
This practice influences the type of units being built, with a growing preference for smaller apartments.
The median size of new condominium apartments in Toronto has decreased from 947 square feet in the 1990s to 640 square feet for units built after 2016. Similarly, Vancouver's median size has dropped from 912 to 790 square feet during the same period.
The data also reveal that a higher proportion of smaller units, particularly those under 600 square feet, are used as investment properties.
In Toronto, 64.5 percent of new units under 600 square feet were investment properties in 2022, compared to 44.1 percent for units over 800 square feet. Vancouver showed a similar trend, with 58.4 percent of units under 600 square feet being used as investment properties.
In Ontario, cities like London, Windsor, and Kitchener-Cambridge-Waterloo have seen high shares of investment properties, often due to large buildings owned by a single entity operating as rental properties.
For instance, 85.5 percent of condominium apartments in London were used as investment properties in 2022. However, this phenomenon is less common in Toronto and other provinces.
