The Great Toronto Condo Boom and Overbuilding Myth - November 2013
It has been many years now that we have been reading about and dreading the great Toronto condo market bust, which was supposed to decimate the real estate market here. So far it hasn't happened, and we are still waiting, for it to happen. Toronto has slowed the pace of construction and sales from the hayday back in 2011 when a record 28,000 condo units were sold, and now as inventory rises, sales are slowing and building of highrise towers will also slow in the next year or so to maintain reasonable supply and demand metrics.
Toronto Developers Have Overplayed their hands?
Some people have stated that the Toronto condo boom has been overplayed and wonder how it is Toronto has far exceed building in the United States almost on a 2 to 1 basis, and then state if Toronto gained nearly twice as many residents as Chicago, Boston, Manhattan, Atlanta, Los Angeles, San Francisco and Miami combined did during 2009-2012, then how is it possible to be building at this rate.
New Assumptions at Play
But that's assuming new condo construction and population gains have a 1:1 relationship. Increased condo supply can be absorbed by thing like decreasing household size which causes an increased need for individual homes to house the same population. There may have been many households with multiple residents (either room mates, parents with adult children, etc.)
Besides. are most of those cities even growing significantly within their city limits? We know for sure that Chicago isn't, and SF and Boston have been retreating from their historic highs for a number of years. We know they're growing in their metro areas, but much (most?) of that growth would not be in the form of condos. And perhaps the other cities had more rental apartment construction than Toronto.
And we also know there were a number of years preceding the boom in which Toronto didn't really have significant condo construction despite its growth. So there was likely lots of pent up demand for condo development to occur.
The Hong Kong Example
Again if you think logically, the other cities mentioned above do not have active government policy to restrict and handcuff developers from building suburban style dwelling. This is why Toronto is now home to probably the continents largest collection of Highrise developers. It didn't happen overnight, some of the other ingredients included a desire for people to live downtown and single family housing in the core which cost well over a million dollars. Pour in 100k new arrivals a year and you have the perfect storm with regards to Highrise construction. Hong Kong has insane amounts of highrises for it's size, while Istanbul does the reverse. Maybe we're seeing an increase in the difference of city design between Canada and the US? (Not saying Toronto doesn't have overbuilding, but that it might not be as high as compairing to the US indicates.)
Using Hong Kong as a an example, you could say Toronto is an inland port for immigrants (100k per year), with barriers on all side to development (the government), which creates the situation where highrise development can now proliferate at a rapid rate, although it is now slowing as inventory comes online and sales slow. Even at a rate of 1/3 the sales of 2011 a record year, Toronto still sells twice as many condos as Miami and Chicago at their peak rate combined. This is obviously a new phenomenon, but one that has become more consistent over the past 12 to 13 years, and the last 10 years in particular of which we now call the great Toronto Condo boom.