Canadian real estate developers are sitting on a record pile of unsold new homes. CMHC data shows completed and unsold new homes hit a record in December, a rare sight in a country where most units are sold pre-construction. Even more surprising is that half of these vacant new homes are in Toronto and Vancouver, where prices have been sticky despite tepid demand. That may change fast, as the inventory joins a laundry list of mounting downward pressures.
Canadian Real Estate Developers See Unsold Inventory Hit A Record High
Completed and unsold homes in Canadian metro regions (CMAs).
Source: CMHC; Better Dwelling.
Developers are sitting on an unprecedented number of completed and unsold homes. Inventory climbed 3.3% to 18,998 new homes in December, up 35.5% from last year. That’s enough to set a new record, with unsold and completed inventory surpassing the previous record of 18,091 units in January 1991.
Completed and unsold inventory is an unusual find in Canada. The vast majority of developments are sold in pre-construction, meaning they’re already sold before the building is completed. Most condo projects need ~70% of inventory sold to even start construction. Developers don’t build and hold much inventory, which requires risking their own capital. December inventory was 52.1% above the 35-year average of units, suggesting a paradigm shift. Half that shift (49.7%) are units in Toronto and Vancouver, two markets notorious for slim inventory.
Toronto Real Estate Developers See Inventory of Unsold Homes Surge
Completed and unsold homes in the Toronto CMA.
Source: CMHC; Better Dwelling.
Just over 1 in 5 (20.9%) of those completed and unsold homes are in Greater Toronto. Inventory climbed 4.5% to 3,975 homes in December, up 56.8% from last year. It’s the most since April 2016, and only matches 3 other periods seen in history—the early 1990s bubble crash, and the oil slump that kicked off in mid-2014.
That kind of unsold inventory is remarkable. Investors scooped roughly 3 in 4 Greater Toronto pre-construction homes. Completed and unsold inventory in December was 35.2% higher than the 35-year average. This suggests Toronto end users struggled to absorb just over 1 in 4 units. It’s an ominous sign for support at current prices, especially when one considers sales are now the worst on record.
Vancouver Real Estate Developers Have A Near-Record of Unsold New Homes Sitting Vacant
Completed and unsold homes in the Vancouver CMA.
Source: CMHC; Better Dwelling.
Greater Vancouver real estate is notorious for inventory scarcity, but not anymore. Completed and unsold inventory jumped 2.2% to 5,458 new homes in December, up 35.8% from last year. That volume is just 4 homes shy of the record reached in December 1995, and more than double (+116.5%) above the 35-year average.
Greater Vancouver real estate prices have demonstrated more resilience than Toronto. However, the region has less than half the population, but has more completed and unsold homes. In fact, over 1 in 4 (28.7%) completed and unsold homes sitting empty in Canada are now located in the region. It’s a volume so large for the region, it’s nearly equal to half the inventory on the local board’s MLS.
What Vacancy Tax? Most Regions Exempt, But Pressure Still Builds
New home prices have been sticky, resisting declines despite weak demand, but the clock is ticking. Vacancy taxes are designed to increase supply by offsetting artificially low carrying costs, lowering the profitability of speculating on empty homes. Governments have quietly carved out exemptions for this case, but the length of these exemptions varies. Both the Federal and Vancouver exemptions are effectively indefinite, as long as the units are listed for sale—even if listed at inflated prices to ensure they aren’t purchased. Meanwhile, Toronto’s exemption only lasts two years—and for many completed projects, those two years are coming fast.
Even if exempted, further downward pressures are building from record-low sales, rising inventory, and record construction already in the pipeline. At the same time, it’s not clear what can provide upward pressure to offset these issues on the horizon.
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