TORONTO – A sliver of land wedged between Toronto’s elevated expressway and an off-ramp that pumps traffic into downtown may become the epicenter for a Canadian housing bubble.
In four years, this site that’s now used as a parking lot and police impound near the shores of Lake Ontario will be home to Ten York, a 75-story glass building that would be the country’s third-tallest condo tower.
Toronto has more skyscrapers and high-rises under construction than any other North American city – almost three times as many as New York – stoking debate on whether the condominium market in Canada’s largest city is headed for a U.S.-style correction as prices rise and household borrowing hits a record.
Canadian lenders including Toronto-Dominion Bank this month raised mortgage rates to cool off the housing market.
“Condo construction has always been rather prone to boom and bust cycles, and this one seems particularly strong,” said Sheryl King, an economist with Bank of America Merrill Lynch in Toronto. “Builders seem to overestimate how much demand is going to be out there, and that’s when you tend to see some abrupt pull-back.”
Canada’s housing market is about 10 percent overvalued, with inflated prices primarily in Vancouver, Montreal and Toronto, King said in an interview. “We would call it a bubble,” she said.
Rising home prices have led to a 53 percent increase in residential mortgage credit in the past five years, or an average rate of 8.9 percent a year. The volume of outstanding mortgages rose to $1.08 trillion as of August, according to the Canadian Association of Accredited Mortgage Professionals. Defaults remain low, at 0.42 percent, according to data from Canada Mortgage & Housing Corp., a government-run agency.
The country’s financial authorities have become increasingly vocal about the housing market. The heads of Bank of Montreal and Royal Bank of Canada; the country’s banking regulator; and Bank of Canada Governor Mark Carney have all expressed concerns about the condo markets in recent months as cranes and construction crews swamp Toronto.
Toronto has 148 high-rises and skyscrapers being built, compared with 59 tall buildings for No. 2-ranked New York City, and 22 in Chicago, according to Emporis, a building data company in Hamburg.
Most of the work is for housing, with 105 residential high-rises proposed or under construction, according to a database by SkyscraperPage.com. Fourteen are slated to finish this year, including two hotel-condos. Trump International Hotel & Tower Toronto, Canada’s tallest residential building, opened Jan. 31, adding 118 luxury residences.
“The number of units under construction is quite high, start levels have trended up, and the number of units coming to completion is growing,” said Shaun Hildebrand, a senior market analyst for the Greater Toronto Area with Canada Mortgage & Housing Corp. “Supply at all ends of the development process is growing quite quickly.”
A record 27,504 condo units in the city of Toronto were under construction at the end of last year, according to Canadian Mortgage & Housing annual data, adding to the city’s total of 199,000 units.
“If builders stopped building today, there’s five years worth of supply that is about to be delivered, relative to what normal population growth is,” Bank of America’s King said.
Investors are piling into Toronto’s condo market because of cheap borrowing costs, and that may become risky when interest rates rise, said John Andrew, a real estate professor at Queen’s University in Kingston, Ontario.
“They’re being bought because the interest rate is very low,” Andrew said in an interview. “They’re financed to the hilt, so they’re very sensitive to the refinance risk when the loans come up.”