Photo: Royal LePage
Vancouver, Toronto and Montreal are in the midst of a condo boom, but is it sustainable?
According to a new report by economist Will Dunning written on behalf of Royal LePage, Canada’s three largest condo markets are expected to experience a degree of “volatility” over the next two years. (Tweet this)
In the short-term, the report predicts construction will slow to better align with growth rates and changing demographics. During this transition, likely over the next two years, the high levels of activity will lower and there may be “some volatility in pricing while a new set of longer-term trends get established.”
In 2011, condos accounted for 14.9 per cent of total households in the three markets studied, and 37.7 per cent of new dwellings. That growth will continue, the report says, with demand for new condos over the next two decades estimated to be between 26,000 and 32,000 new units per year — 43 to 53 per cent of the new housing market going forward.
Still, those numbers are well below current condo starts which average 43,774 units a year.
The strong showing of Canada’s three largest condo markets is thanks to “exceptionally low interest rates, robust job creation in central areas of cities, shifting consumer preferences and conditions that can make condo ownership an effective investment opportunity.”
Dunning adds that the strong activity is “not sufficient evidence of a housing bubble.”
“It can reasonably be expected that over the long-term, condominiums will experience price growth similar to that seen for the so-called ‘traditional’ housing forms,” he says.
Over the last 20 years, condo prices in the GTA rose by 5.1 per cent per year, versus 5.9 per cent of single family homes; in greater Montreal, condo prices rose by 5.5 per cent per year, versus 5.1 per cent of single family homes; and in greater Vancouver, condo prices rose by 4.5 per cent per year, versus 5.7 per cent of single family homes.
“The longer-term role of condos depends on several variables, including shifting demand patterns, pace of project completion and changes to mortgage rules,” Will Dunning says in the report.
“In the housing market, demographics are not always destiny, and various factors including the appeal of amenity-rich urban living and delayed childbearing have increased condo demand. This helps greatly to explain why apartment activity has recently exceeded the so-called demographic requirement.”
The report also makes note of how so-called construction “bottlenecks” have helped keep the market stable.
“To date, the ability of builders to start construction on condominium projects has surpassed their capacity to complete construction,” the report points out. The question going forward is how quickly units will be completed in the future, whether there will be sufficient demand for these units, and what the outcome would be if supply outstrips demand.
Then, of course, there is the unknown quantity of what long-term impact the federal government’s new mortgage insurance policies will have.
“The revised rules have made access to financing more difficult, especially for first-time homebuyers, and this has the potential to affect the dynamics of the condo market,” the report says.
Read it for yourself here.