Without investors, the bulk of condo supply could disappear, leaving renters with few options
While Toronto is severely lacking in purpose-built rentals, investor-owned condos are bridging a gap that would otherwise leave thousands of people without affordable housing. In the Toronto Census Metropolitan Area (CMA), encompassing the City of Toronto and its surrounding municipalities, 38.9 per cent of condos in 2022 were owned by investors. For units built since 2016, that share jumps to 56.3 per cent.
Most investor-owned condos end up in the rental market. Consider the City of Toronto, which has 328,165 condominiums, at least 133,020 (or 40 per cent) of which are investor-owned and likely available in the city’s tight rental landscape.
Statistics Canada’s Canadian Housing Statistics Program (CHSP) doesn’t track the tenure of investor-owned units, but other data fill the gap. Last year, the City of Toronto’s tally of vacant homes, including condos, was just 11,000. This supports the assertion that most of the 133,020 investor-owned condos are occupied, likely by renters.
The recent CHSP data covers British Columbia, Manitoba, Ontario, Nova Scotia, and New Brunswick but noticeably omits Alberta and Quebec. Hopefully, future releases will include data from these two populous provinces.
The commentary accompanying the data took a jab at investors, hinting they may be crowding out first-time homebuyers (FTHB). It also pointed to the shrinking size of condos, attributing this trend to investor preferences. According to Statistics Canada, renters drive demand for smaller units, which can fetch higher per-square-foot rents.
While we agree that condo sizes have shrunk over time, blaming investors’ profit motives oversimplifies the issue. Consider the data: in the 1990s, the median size of a Toronto CMA condo was 947 square feet, dropping to 640 square feet for those built since 2016. A similar trend is seen in Vancouver, where the median size fell from 912 to 790 square feet over the same period.
So what’s driving this change? Demographics play a crucial role — single-person households are one of the fastest-growing cohorts in Canada, with naturally smaller housing needs. Societal shifts also contribute: large cooking fixtures like ovens are becoming less essential as food delivery services like SkipTheDishes and Uber Eats bring cooked meals right to the door.
Now, imagine if condo sizes hadn’t shrunk. A 947-square-foot ’90s-sized condo would cost around $1.3 million. With a 20 per cent down payment, the mortgage would be $1.06 million. A quick calculation of a 30-year amortization at a 4.7 per cent fixed five-year rate puts monthly payments at about $5,200. Add maintenance fees and taxes, and carrying costs rise to nearly $6,400 — before factoring in utilities and other expenses.
For a family of four, $6,400 a month is steep for a home without a basement, ample storage, or a backyard. That’s why many opt for the suburbs, where they can get more space for their money. And if investors were to bet on larger units, they’d need a solid return. At the current average Toronto rate of $4 per square foot, a bigger condo would rent for under $4,000 a month, leaving investors with significant negative cash flow in a market where prices are slow to appreciate.
In the Vancouver CMA, 58.4 per cent of condos under 600 square feet are investor-owned, highlighting how investors fund the construction of smaller units. However, investor choices are driven by the affordability constraints of renters, who cannot pay the rents needed to keep larger properties afloat.
Unlike Statistics Canada, the CMHC commentary acknowledges investors’ crucial role in funding new housing. CMHC notes that “small investors provide much of the funding to build condo apartments.” Without investors, the bulk of condo supply could disappear, leaving renters with few options.