Last week was an eventful one for the housing market; not only did the Liberals hike the minimum down payment, CMHC released its latest start numbers, which find condo construction is the highest they’ve been since 1971. At first glance you’d think that would be great news, but the latest numbers are making economists nervous.
Builders in urban centre have constructed 168,057 new units up to the end of November this year, an increase of 6 per cent, with multi units accounting for 68.4 per cent of all new construction, up 14 per cent to 114,965 units. Meanwhile, the construction of detached homes saw a decrease of 8 per cent to 53,092 units.
Growing Condo Construction
It’s plain to see there’s a condo boom underway – just look at the Toronto skyline, which is unrecognizable from even 10 years ago. In fact, of all new construction this year, condo and apartment towers made up over two-thirds. That has some in the real estate market dubbing 2015 the year of the condo.
When we take a closer look at the numbers, we see the number of multiple units as a share of total new numbers is the highest level in 44 years. Builders are ploughing ahead in condo projects in red hot real estate markets like Toronto and Vancouver.
Lack of Houses Drive Buyers to Condos
While condos have always been a popular option for those looking to get their foot in the housing market, what’s behind the sudden uptick in the construction of new condos? The lack of affordable housing in Toronto and Vancouver is a main reason. The condo boom is helping counterbalance a slowdown in the construction of single detached homes across Canada.
According to Bob Dugan, Chief Economist at CMHC, the real estate market is going through an “affordability-based transition of demand from singles to multiples.” This is happening in part due to the “growing price gap” between detached homes and condos.
An Overbuilding Risk
However, it’s not all good news. Condo developers need to be careful and make sure there’s sufficient demand before building a new project. Dugan says condo developers needs to be aware of the risk of overbuilding projects, leaving units completed and unsold.
Diana Petramala, economist of TD Bank, has a similar feeling about the condo market. “In the wake of rising new home inventory, builders should focus on inventory management,” she said. Due to tight market conditions (low supply and high demand) for single detached family homes, this will continue the construction of new condos.