Canada’s Home Ownership Crisis Intensifies as Condo Sales Remain Stalled

OTTAWA—Canada’s home ownership crisis is likely to worsen over the next few years as proposed project sales languish at historically low levels, stalling the funding needed for construction, as indicated by half a dozen economists and realtors who spoke to Reuters.

The sale of these proposed projects, typically featuring one- or two-bedroom condominiums in major hubs like Toronto, is commonly referred to as pre-construction sales, with a significant portion acquired by investors for rental purposes.

Many Canadians have been priced out of home ownership since interest rates began to rise two years ago, and even with recent reductions in rates and more lenient mortgage rules, non-investor buyers have faced challenges.

“If you think moms and dads with strollers are lining up at condo projects to buy 500 square foot condominiums, they are not,” explained John Pasalis, president of Realosophy Realty, a Toronto-based real estate brokerage.

There is no official data on pre-construction sales, with figures primarily gathered by realtors and economists through market transactions.

Up until now, investors had been driving a construction boom in major cities. However, analysts and real estate agents noted their reluctance to participate due to factors like high mortgage costs, diminished prospects for capital appreciation, slower rent increases, and uncertainties surrounding interest rate changes and government interventions in the housing market.

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Once a certain threshold of property sales, typically between 50 and 70 percent, is met, lenders agree to finance builders for project construction to commence.

Canada’s housing crisis is a significant factor contributing to the decline in Prime Minister Justin Trudeau’s approval ratings.

Despite the Liberal party’s introduction of various measures to address the crisis, government data indicates that these efforts have not effectively spurred builders to increase home construction.

A decrease in pre-sales suggests that the initiation of project construction will decrease in the coming months, further restricting the supply required to meet increasing demand over the years, according to Robert Hogue, a housing economist at RBC.

“We will not achieve a market balance for home ownership in the next four or five years,” he stated, underscoring how this could exacerbate the existing demand-supply imbalance fueling Canada’s housing crisis.

Recently, the government made changes to mortgage payment regulations, allowing first-time buyers and those purchasing newly built homes to secure loans with 30-year amortizations instead of 25 years.

However, critics argue that this may not necessarily incentivize builders to commence construction, especially since investors are likely to remain cautious given that the cheapest mortgage rate – a five-year fixed rate – may see minimal changes despite multiple rate cuts.

Furthermore, the increased supply in the market, particularly in the Toronto area, has dampened investor expectations regarding future capital appreciation.

Despite the government’s efforts to control population growth through stricter immigration policies, Hogue noted that the growth rate will still remain robust, sustaining ongoing demand.

According to a recent report from the federal housing agency CMHC, citing an independent study in its Housing Supply Report from last month, new condominium sales in the first half of 2024 were more than halved compared to the same period a year earlier.

Aled ab Iorwerth, deputy chief economist at CMHC and co-author of the report, pointed out that many developers are in need of funds to kickstart planned condo projects.

“Constructing these large condominium structures has become quite challenging in today’s environment,” he remarked.