Photo: Andrew Rivett/Flickr
Condo construction in the Toronto and Vancouver metro areas is on the upswing, but a leading economist is pointing to a possible risk that faces one of these markets.
In June, Vancouver Census Metropolitan Area (CMA) housing starts trended at 29,932 units, the highest rate since 1990, according to the Canada Mortgage and Housing Corporation’s latest numbers. For the Toronto CMA starts trended at 40,861 units, up from 37,377 in May.
The figures are based on six-month moving averages of monthly projections of how many units would begin construction in a year if monthly activity persisted for 12 months in these markets.
However, BMO Senior Economist Robert Kavcic highlights concerns about Vancouver’s condo boom and suggests Toronto’s surging high-rise construction is linked to builders making up for 2013 and 2014 building activity, when construction levels were lower.
“Aside from a pickup in Toronto (which is balancing out a lull through 2013 and 2014), the real strength has been in Vancouver,” writes Kavcic in a note published this morning.
CMHC defines a start as the beginning of construction, “usually when the concrete has been poured for the whole of the footing around the structure.”
Citing CMHC data, Kavcic notes Vancouver starts are on pace to hit nearly 30,000 units this year, trending far above the 10-year average for the city.
“Concerning?” asks Kavcic. “The run-up clearly comes on the back of condo prices accelerating to an unsustainable rate, and the concern is that more speculative activity is helping to bring units to construction, well in excess of what is needed to meet demographic demand,” he cautions.
In June, the benchmark price of a Metro Vancouver condo reached $501,100, up 25.3 per cent in one year, according to the Real Estate Board of Greater Vancouver. Buying a home or condo unit with the intention of reselling quickly for a profit, also known as flipping, is an example of speculative activity, and fast-rising prices can encourage this.
Kavcic recently told BuzzBuzzHome News he’s noticed home flipping creeping up in Vancouver. And today, the BC provincial government said it would alter the city’s charter so a tax on homes left empty by investors can be implemented, reports the CBC.
However, in the BMO report Kavcic also notes factors that are supportive of more condo construction in Vancouver, despite concerns over the actions of investors.
“The flip side is that the market is currently drum tight. The number of unabsorbed units has fallen meaningfully over the past year, and the city’s apartment vacancy rate is below 1 per cent,” says Kavcic.
“Still, this is an area to keep a close eye on. If speculative activity is helping to bring more supply, the overhang will be that much larger when demand eventually rolls over,” he adds.