Condo Supply Rising…Definitely, Maybe
Toronto’s condo prices continue to show strong annual appreciation rates at 8.8% for the month of August, while rental rates are coming in at 10.2% for the second quarter of 2018 and vacancy rates are at just 0.7%. The average condo in the city of Toronto will now cost you $585,000 and the average one bedroom apartment rented through the MLS system in Toronto will now cost you over $2,100 per month. We could use some more condos on the market, but is condo supply on the rise?
Given the fact that both prices and rent are increasing in this city, it’s not surprising to see investors hold on to their investment. Resale condo supply has been very low; in fact, we haven’t seen months of inventory for condos in Toronto go above 2 since March of 2016. While we aren’t really building more detached houses in the 416, condos are a different story. With a record number of cranes in Toronto’s sky, it’s obvious that condos can and are being built. Most of us now know that sales levels in the resale market soared through 2016 and the first half of 2017. It’s important to note they also soared in new construction over the same period. With some lag time in between, you would expect this to lead to an increase in supply in both the rental and eventually the resale market, providing some much needed supply. Here’s a look at some of the numbers:
- In 2016, new condos sales climbed 34% from 2015, to 27,217 units. In 2017, new condo sales jumped another 30% to 35,074 units, 70% higher than the 10 year average.
- While new sales were rising, completions, in contrast, were coming in at a 5 year low, just 13,517 in 2017.
- Urbanation is expecting completions to surge over the next few years and are projecting completions to be between 22,000-28,000 units annually in 2018,19,20. However, deliveries are typically 7,000 lower than projections as things like construction capacity come into play.
- Purpose built rental completions are also expected to increase as a number of new projects have begun construction.This should provide some more relief to the rental market and could adversely impact supply for the resale condo market.
- While new condo sales were booming in 2016 and 2017, they have dropped significantly in 2018 to 13% below the 10 year average. Which means any supply relief to come may be short lived as investors take a pause.
While condo supply has potential to improve, the increase in inventory would be welcome with open arms. More Buyers are making a condo their home of choice as downsizers seek low maintenance options and First Time Buyer have been forced to make a more affordable choice. Demand for condos in the 416 is showing some limitations.
Detached home sales improved this summer from last year’s dramatic drops, up 27% in July and 17% higher in August. However, condo sales in the 416 didn’t fair quite so well only increasing 5% in July and actually dropping 5% in August – potentially a signal that condo prices in the 416 are unaffordable for most would-be Buyers. This is particularly noteworthy given that condo sales in the 905 managed to climb 19% this summer from last, and the average price is $140,000 cheaper than in the 416.
It’s not news that Toronto is in need of more housing supply, but it is important to understand if and when that might come. Buyers are either showing some patience or are being forced to shift their purchasing options to property types and areas that have more available inventory. If completions start to get pushed through at record numbers, you would expect some supply relief to take place. With a tight vacancy rate and strong population growth, record completions may be just what is needed in Toronto.
