A sharp drop in new condo sales in the Greater Toronto Area will result in fewer homes getting built, worsening the region’s housing shortage and affordability crisis, experts are warning.

“You have tighter supply working to push rents even higher and creating even more affordability challenges for renters,” said Shaun Hildebrand, president of Urbanation Inc., which tracks the GTA condo market. Between the beginning of January and the end of June, a total of 6,727 new condos were sold in the GTA, down 59 per cent compared to the same period last year and the lowest tally of new condo sales for the first half of a year in a decade, according to a recent Urbanation report.

Hildebrand said slowing sales as a result of higher interest rates are going to have significant knock-on effects. “With fewer pre-sale condos coming to market, there’s going to be fewer construction starts, and then there’s going to be fewer deliveries,” Hildebrand added.

That’s especially a problem for renters since the construction of purpose-built rental units, which are intended for long-term renting, hasn’t come anywhere near meeting demand according to Barbara Lawlor, CEO of Baker Real Estate Inc., a pre-construction residential sales company. “For the last decade, the only rental stock has been coming from the new construction, condominium arena, and we’re so poorly undersupplied in terms of rental stock,” she said.

Already, interest rates, which began rising last March, are hurting the GTA’s supply of new housing. In last year’s second half alone, 10,000 planned new units simply never appeared. “These are projects that were gearing up to launch in the second half, had started to release marketing material. They were on the schedule to come to market, and they didn’t,” noted Hildebrand, who said he wouldn’t be surprised if that number climbs to 20,000 by the year’s end. “As we move through the second half of this year, what you’re going to see is that condo completions are going to begin to outweigh construction starts,” he said.

According to a nationwide industry survey by the Canadian Home Builders’ Association (CHBA), 22 per cent of builders say the housing downturn is causing them to cancel projects outright. 

“We still expect a slow year this year relative to the previous two years and housing starts to drop significantly off of what were two very good years in 2022 and 2021,” Kevin Lee, CEO of CHBA, said. “And that, of course, is problematic when we are in such desperate need of more housing supply.” 

Despite low sales and cancelled projects, it’s not all doom and gloom in the new condo market.

“Demand for lower-priced projects is actually pretty good right now, so it’s not as if the market has fallen precipitously across the board,” said Hildebrand. Specifically, condos priced below $1,200 per square foot and located in the 905 are still selling well, he noted.  

For buyers who are deciding to purchase, there are some deals to be found in a more muted market. According to Urbanation, the average price of available new condos in the second quarter was $1,411 per square foot, down 1.3 per cent from the previous quarter and 2.2 per cent on a year-over-year basis. That’s the first annual price drop in 10 years.

Lawlor admitted the sales environment isn’t easy right now. “The interest rate hikes have had an effect on our sales, but, having said that, we’ve had some very big successes this year.” And, having worked in real estate since 1987, Lawlor added she’s seen much tougher markets: “I’ve been in real estate through all of the highs and the lows and the froth.”