Canada’s home ownership crisis is poised to worsen as pre-construction condo sales hit historic lows, leaving a significant funding gap for new housing developments. The stalled sales of one- and two-bedroom condos in major urban areas like Toronto, which are typically purchased by investors, have slowed the capital flow necessary to initiate new projects, economists and realtors told Reuters.
John Pasalis, president of Realosophy Realty in Toronto, notes that typical homebuyers, including young families, aren’t flocking to buy compact 500-square-foot units. These sales, traditionally driven by investors, have cooled due to high mortgage costs, uncertain rent increases, and concerns over the housing market’s future direction. With investors pulling back, projects are struggling to meet the 50-70% pre-sale threshold that lenders require to greenlight construction.
Robert Hogue, a housing economist at RBC, warns that this lag in pre-sales could translate to reduced construction in the coming months, which would exacerbate Canada’s already severe supply-demand imbalance. Despite government measures, including a recent rule change allowing 30-year amortization for new buyers, the industry remains pessimistic that it will bring investors back into the market.
Federal housing data reflects this market contraction, with a recent Canada Mortgage and Housing Corporation (CMHC) report showing new condo sales down by more than half in early 2024 compared to the previous year. Aled ab Iorwerth, CMHC’s deputy chief economist, confirms that developers are grappling with financial challenges in an environment of diminishing investor interest, which complicates large-scale condo projects.
Despite efforts to curb population growth, including stricter immigration policies, Canada’s demand for housing continues to rise, further intensifying the crisis as the gap between supply and demand widens.