Developers could cancel about 5,000 new condo units as construction prices rise, industry observer says
Developers could cancel the construction of approximately 5,000 new condominium units in Toronto in response to rising material and labour costs, an analysis conducted by the real estate research firm Urbanation has found.
Urbanation President Shaun Hildebrand shared the results of the analysis with CP24 on Tuesday.
He said building costs that are up approximately 20 per cent year-over-year are now rising “much faster” than real estate, which could result in some projects “no longer being economically feasible to proceed with.”
Rising labour costs amid record low unemployment are also a factor, according to Hildebrand.
“This is being exacerbated by supply chain issues caused by the pandemic and the war in the Ukraine and it is contributing to very, very strong increases in costs to the point now where construction costs for condos are up 20 per cent year-over-year and they are growing much faster than prices,” he said. “It is not just the 5,000 units that are already in the market that could cancel, it is all of the projects that should have launched over the next little while that are no longer going to be entering into the market. So that puts the supply squeeze not only on today but years down the line when these projects ultimately get delivered.”
Real estate prices have already started to soften amid an aggressive interest rate tightening cycle being taken by the Bank of Canada.
Hildebrand said that Toronto has been in the midst of a “condo boom” for some time, so overall supply should remain strong with about 87,000 units currently under construction and 33,000 more in the pre-construction stage.
But he warned that there will be some “collateral damage” due to the fact that “costs are rising very quickly at a time that prices are starting to soften.”
In that case he said that buyers will be entitled to have their deposits returned to them under Ontario law, but not necessarily with appreciation.
“Unfortunately, it could be years between when that deposit is paid and when they actually get their money back and in the interim prices could have escalated quite a bit and they are not usually able to get that appreciation from that deposit, which in some cases shoves the purchasers out of the market,” he said.
Data from the Toronto Region Real Estate Board has previously suggested that home prices have now fallen for three straight months. The average price of a Toronto home was, however, still up 10 per cent year-over-year in May.