Developers could cancel the construction of approximately 5,000 new condominium units in Toronto in response to rising materials and labor costs, according to an analysis by real estate research firm Urbanation.
Urbanization President Shaun Hildebrand shared the results of the analysis with CP24 on Tuesday.
He said construction costs, which are rising by about 20 per cent year-on-year, are now rising “much faster” than real estate, which could lead to some projects being “no longer economically viable”.
Rising labor costs amid a record low unemployment is also a factor, according to Hildebrand.
“This is being exacerbated by supply chain problems caused by the pandemic and war in Ukraine and is contributing to very, very strong cost increases to the point that now condominium construction costs are up 20% year-on-year. and they are growing much faster than prices, “he said.” It’s not just the 5,000 units already on the market that could be canceled, but all the projects that should have been launched in “This will limit the supply, not just today, but years later when these projects are finally delivered.”
Real estate prices have already begun to soften amid an aggressive cycle of tightening interest rates that the Bank of Canada is taking.
Hildebrand said Toronto has been in the midst of a “condominium boom” for some time, so global supply is expected to remain strong with some 87,000 units currently under construction and 33,000 more under construction.
But he warned that there would be some “collateral damage” due to the fact that “costs are rising very fast at a time when prices are starting to soften”.
In this case, he said buyers will have the right to have their deposits returned to them under Ontario law, but not necessarily with gratitude.
“Unfortunately, it could be years between when this deposit is paid and when they actually get their money back, and in the meantime prices could have gone up quite a bit and they usually can’t get that appreciation from this deposit, which in some cases drives buyers away from the market. “, he said.
Data from the Toronto Region Real Estate Board have previously suggested that house prices have fallen for three months in a row. The average price of a home in Toronto, however, still rose 10 percent year-on-year in May.