Condo market is in a 'perfect storm'

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For Riz Dhanji, founder and president of RAD Marketing, a firm that specializes in sales and marketing for pre-construction developments, there is only one word to describe the state of today’s housing market in the GTA: Grim.

Aside from a surplus of inventory caused by people selling units because they have to, there are, he says, a “flood of condominiums coming on the market.”

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It is the perfect storm and according to Dhanji, there are several reasons that have created the current housing situation in the GTA and elsewhere. First, inventory is at  a “historic high,” at the same time, builders have recently been hit with massive new development charge (DCs) increases across the GTA of 20 per cent.

Reacting to those increases, Dave Wilkes president and CEO of the Building Industry and Land Development Association (BILD), wrote in a column in this section last month that “fixed-rate municipal charges (like Development Charges), now constitute a larger proportion of new home costs. In many GTA municipalities, these charges can average between $100,000-$150,000 for a single family home and are going up not down, contributing as an inflationary pressure to the cost of a new home.”

When it comes to the need for affordable housing in particular, local politicians, says Dhanji, appear to be “speaking out of both sides of the mouths. It just doesn’t  make any sense to me, how they think that anyone can build affordable housing when the costs and the taxes are at these levels.

Who is going to build? Nobody has any desire to do it, so most of the projects are either being shelved or (developers) are saying ‘we are going to wait until the market turns.’ It is a wait-and-see game for a lot of them right now.”

His message, he says, is this: If local politicians continue to raise DCs and other fees – “their actions are not towards really making (housing) affordable. I just don’t get it.”

There are, points out Dhanji, many different cities in the U.S. in which municipalities are tackling the housing affordability crisis by reducing taxes and making it “more friendly for developers to build and the prices are much cheaper.”

Reduced DCs and taxes also extend to luxury projects. One such residence currently under construction in Miami Beach that he visited recently is Edition Residences Miami Edgewater, which overlooks Biscayne Bay.

The cost per sq. ft. of one two-bedroom unit plus den with 2.5 bathrooms is US$1,393. Compare that to a one-bedroom plus den at Fifty Scollard Condos in Yorkville and the price per sq. ft. is $2,586.

Whether it involves affordable or luxury housing, a key factor is the interest rate and as for the recent cut of 25 basis points by the Bank of Canada, he says it “did nothing.”

To have a meaningful impact on sales, adds Dhanji, there needs to be a minimum reduction of 100 basis points in order to move people from the sidelines and into the market and he does not expect that to occur until the middle or the end of 2025.

“But what happens when the market starts to take off and we have a lack of supply that comes on the market similar to we have seen after the financial crisis of 2008 or COVID-19. We do not have enough product and prices continue to go up. That is the challenge because it is a four-to-five year cycle to take a building from inception to completion. And I am worried about 2026 and 2027 where we are really going to have a short amount of product that is going to be completing.”