A bubble does not exist in Toronto’s condo market, says a new report by the economics department of Royal Bank of Canada, the country’s largest bank and biggest mortgage lender.
The report, titled “Booming Toronto Condo Market Does Not Imply a Bubble”, was published today and runs contrary to recent statements made by Jim Flaherty, Canada’s Minster of Finance, and Mark Carney, the governor of the Bank of Canada.
The report acknowledges that the “army of cranes redefining the Toronto skyline” is often cited as evidence of a bubble, however, it argues that the broader housing context in the area must be considered.
“Based on market activity to date, the total number of new housing units (condos, single-family homes, and others) completed by builders has not exceeded the GTA’s demographic requirements and is unlikely to do so by any significant magnitude in the next few years,” the report states.
Here is a selection of the choice points contained within the RBC report:
- The GTA must increasingly expand its housing stock ‘vertically’ to avoid urban sprawl while accommodating 38,000 net new households each year
- The Toronto region has never seen so much new residential construction, but the construction cycle of a condominium is long (up to 3 years) meaning there will be more ongoing multi-unit construction than single unit construction at any one time
- Worries that large numbers of new condo units are sitting empty are not supported by statistics
- The number of new, unoccupied multi-family units is historically low (7.5 per cent of units completed over the last 12 months)
- Demand for occupancy in the GTA is strong and supported by demographics, so newly built condos will continue to find occupants in the period ahead
- Concerns about investors are overblown or at least premature
- Although a sample of recent projects showed investor presence ranges between 15 and 40 per cent, investors have been individual owners looking to generate rental income on their investments
- Investors are right to anticipate a strong demand for rental units in the years ahead as the prime rental demographic (ages 25 – 35) will grow in the GTA, the Bank of Canada will adjust interest rates and mortgage rules will become tighter
Great food for thought and good arguments to cite the next time you encounter a Toronto condo bubble doomsday prophet.