Condos in Toronto making up for shortage?

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Brokers in Toronto may have cause for optimism as one new study suggests the city’s condo housing boom is making up for a shortage, rather than creating a surplus.

“CMHC forecasts that the vacancy rate for Toronto CMA will be 1.5 per cent in 2013 and 1.7 per cent in 2014, similar to the rate of 1.7 per cent for October 2012,” Will Dunning, chief economist for CAAMP said in his most recent study, sponsored by Royal LePage. “I would argue that the expectation of continued tightness in the vacancy rate is a further indication that supplies of new condominiums are filling a shortage from the past, rather than creating a surplus.”

And to rectify this, Dunning argues, the Toronto area requires a number of condo units in excess of the current demographic needs.

“Two datasets (on periods of construction of condominiums and vacancy rates) suggest (but do not prove) that there has been some under-production of condominiums during the past two decades,” Dunning said. “So, we can see an important underlying cause for the expansion of condominium construction during the past few years: the evolving vacancy rate data indicates that the Toronto area is experiencing a worsening housing shortage; a period of production in excess of the demographic requirements is needed in order to restore balance between the supply and demand of housing.”

There are several factors that are currently influencing condo starts in Toronto, including job creation and historically low interest rates. And while Dunning believes Toronto’s housing market could support a glut of new condominium buildings, he believes starts will slow in the near future.

“Looking forward, we can expect that condominium activity will slow. In part, this will be due to the rise in mortgage interest rates that occurred during the late spring,” he said. “Condominium activity will also be influenced by the policy change that was made by the federal government, during the summer of 2012, which eliminated mortgage insurance for mortgages that have amortization periods longer than 25 years.”

If his analysis proves to be correct – and there will surely be those who disagree – the nation’s number one housing market may be healthier than previously thought.

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