A Toronto Condo Bubble?

Toronto has experienced a virtual explosion in high rise condominium construction in recent years, especially in the downtown area. According to Bloomberg, Toronto has the largest number of high-rise condominium towers under construction in the world.

However concerns are being expressed that the market may be saturated and that a housing bubble is developing. The Toronto Starreports that new condominium sales declined 55 percent in the first quarter of 2013, compared to last year.

At the same time, a huge number of new condominium units is under construction in Toronto. According to The Star, 57,000 units were being built during the first quarter. The first quarter build rate is reported as the largest rate ever. For their part, builders have scaled back plans for new towers

Who is Buying?

In an article entitled, “Toronto Condo Investors Under Water,” the Toronto Condo Bubble|Toronto Housing Bubble website (subtitled Largest Housing Bubble Except for Vancouver of Course) asked:  “… if condo living is the way of the future, then why is it that the majority of people who buy condos never actually live in them?”

The question was in the context of a report by Scotiabank that between 45% and 60% of Toronto condominium purchasers were investors, rather than people who actually intended to live in the housing.

Single Family Housing in Toronto: The Holy Grail

At the same time, The Star points to indicators that the single family housing market retains considerable strength. Part of the reason is that this most desired type of housing is made far more difficult to build as a result of provincial land-use policies (urban containment, including the Toronto "greenbelt").According to The Star, "That’s made detached homes, in particular, the coveted Holy Grail of housing."

Despite the explosion in condominium units, Statistics Canada data indicates that 71 percent of net new occupied housing in the Toronto metropolitan area was detached between 2006 and 2011.

These market dynamics, rising detached house prices relative to incomes and heightened speculation are predictable outcomes of urban containment (land rationing) policies.