It may be a new year, but early indications are showing that the already strong Toronto condo market will be even stronger in 2022 and could break records. The chill that some market analysts predicted at the beginning of the pandemic never really happened as developers, realtors, and homebuyers noticed an uptick in the demand for housing.
While some continue to predict an eventual downturn, the reality of Toronto’s high-flying condo market simply comes down to the most basic of all economic concepts: supply and demand. “The pre-construction market continues to show below historical average levels of supply,” said Pauline Lierman, Vice President of Market Research with Zonda, in an email at the beginning of 2022.
Toronto’s housing supply issues go back decades. Without adequately addressing supply by dramatically increasing the number of units under construction, demand will stay high along with pricing. There should be some minor supply relief on the horizon in Toronto’s pre-construction market, however, which will fuel increased activity in the first quarter of 2022.
“New pre-construction projects anticipated during the early part of 2022 total 7,684 units, which is more like a strong second-quarter slate of expected openings,” Ms. Lierman offered, which will create a selling buzz mirroring the first quarter of 2017 -- which was a record year for GTA pre-construction sales.
This quick start is great news for both buyers and investors, as the pandemic in 2021 and the challenges imposed on the construction industry did stall the number of condominium apartments and purpose-built rental units so that they reached a completion of only 17,865 units.
Immigration is what drives the Canadian economy, what keeps us culturally and socially vibrant, and what keeps Toronto growing and thriving. Despite the pandemic, Canada welcomed a record-number 401,000 new permanent residents in 2021 and that number could edge closer to 411,000 in 2022 to meet the government’s ambitious immigration targets.
According to Statistics Canada, immigrants tend to buy homes in large urban centres like Toronto. Statistics Canada is also projecting we will welcome over 1 million international students in 2022, 49% of which are at the university level and in dire need of rental accommodations. Proximity to the core and universities are two of the main reasons new immigrants love urban centres, and these two reasons alone will bring extra heat to our market.
Additionally, it is predicted that over the next 10 years, Toronto will need to add over 1 million homes to keep up with demand. Ontario only permits a maximum of 40,000 homes to be built per year, which means our chronic shortage isn’t going to be addressed anytime soon.
Naturally, this level of demand will continue to impact pricing. “Appreciation in downtown Toronto pre-construction had slowed,” Ms, Lierman admitted. “However, with some new launches in the downtown Toronto market achieving over $2,000 psf (the typical recent project launch was approx. $1,400 psf), it would not be surprising to see the typical launch in central Toronto start to push new price thresholds once again.”
With the average price of a detached home in downtown Toronto now surpassing $2 million and the gap between the average condo price vs. low-rise price is now double and quickly adjusting higher, it’s logical to expect condo prices in downtown will continue to increase over the course of 2022. That’s why this year is expected to be ‘the year of the condo’ with projected double-digit price increases expected, especially in Toronto.
Looking at Canada’s overall real estate market prospects in 2022, Robert Hogue, a member of the Macroeconomic and Regional Analysis Group with RBC Economics, echoes the above sentiment. “Local markets across the country remain critically short of supply as 2021 draws to a close. And this keeps a raging fire under property values. The MLS Home Price Index for Canada jumped for a third-straight month, surging 2.7% from October. Relative to a year ago, the index is up an astounding 25.3% -- a record high. Despite signs of cooling this past spring and summer, our housing market is ending 2021 the way it started it: scorching hot.”
Starting off January 2022 with the lowest inventory numbers in history signals that 2022 will be another angst-ridden year for homebuyers looking for a home with limited options and even higher pricing. That’s why we expect condos to come back with double-digit growth and outperform the low-rise sector, especially considering that the inevitable increase of the overnight rate by the Bank of Canada will leave consumers with no choice but to look at condos for an alternative affordable option.
As Mr. Hogue describes further in his analysis, the supply and demand issues have become “endemic” with sales-to-new listings dramatically favouring the sellers in every Canadian market. The impending interest hike, in conjunction with existing affordability issues and the loosening of pandemic restrictions, could cool demand and price growth but, as Mr. Hogue later concedes is a follow-up analysis, “even more transactions could have easily taken place [in 2021] had it not been for a 3.2% m/m drop in new listings. Despite the historical boom in activity, we believe there continues to be unmet demand in the market -- the lack of supply is holding many buyers back.”
The importance the pre-construction condo market plays in Toronto’s housing health is even greater when considering the resale market is slower; this January we will only see approximately 3,200 resale listings for a population of over 6 million people in the GTA. Let’s absorb how chronically low that shortage is. Per capita, it is one of the lowest inventories in the world and it will only get worse as immigration ramps up. Prices are breaking records in the resale market, and this is now spilling into the pre-construction market because homebuyers have nowhere else to turn.
Toronto's real estate market has already put the dream of a low-rise home purchase out of reach for many immigrants and most millennials. New developments and pre-construction projects have historically been a popular alternative. Given the flexible payment structures offered by developers and the longer completion time, those who have abandoned the resale housing market still have hope. There is an urgency to act now, however; inclusionary zoning and higher material costs are going to force developers to ask for higher prices, so there’s no stopping this price escalation anytime soon.