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| 1. | Brandon Donnelly | 14M |
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The best part about making predictions for a year ahead is that at the end of the year you get to look back with humility on what you were thinking at the time and realize how much you missed and how different things turned out.
So, what might happen in 2026?
Condominium development in Toronto: I think 2026 will be an important turning point year. If I keep saying this, at some point I'll be right, right? 2026 is the first year where we will start to see new condominium completions from the last cycle fall off significantly. Last year (2025), we were projecting nearly 32,000 condominium home completions. This year, it's projected to drop to ~17,487, with 2027 falling off even further as we head to almost no new supply (based on the current pipeline). What I think this means is that the first half of 2026 will still be painful as the market absorbs new inventory and the inventory from 2025 (including unsold units, units in default, and other scenarios), but that things will start to stabilize and feel better toward the end of 2026 and into 2027. New supply will now be delivering below the 10-year average for the first time in many years.
Purpose-built rental development in Toronto: The story since the condominium market turned in 2022 has been the flip to rental. But not all developers and sites can make this switch and, as I have argued before, the numbers suggest that it won't be enough to offset our dwindling new condominium supply. That said, I think rental rates will remain soft throughout 2026. The supply crunch we're headed toward will need a bit more time to be felt by the market. In the meantime, we will see the highly-amenitized purpose-built rental model fail. The strategy of using over-the-top amenities to drive high rents will finally fall apart in the current market environment. In its place will be a flight to value: boring rental models that offer a quality housing experience at reasonable prices.
Boutique end-user projects: In markets like Toronto and Vancouver, where the development landscape remains unfavourable, we will see a continued focus on smaller projects and projects catering exclusively to end-users. This demand segment is the most resilient and this re-orientation will help the next development cycle start on more solid footing.
Foreign buyer ban: The Canadian federal government will relax the foreign buyer ban (which is set to expire on January 1, 2027) and allow foreigners to buy pre-construction homes. There are already rumblings about this so I acknowledge this isn't that bold a prediction. But beyond just relaxing the ban, I think government will start actively courting foreign capital to help solve our housing needs.
AI bubble: 2026 will be the year that the AI bubble bursts. Not because AI isn't powerful tech that will continue to change the world, but because we are, in the words of investor Howard Marks, in an "inflection bubble." This is different from a fake bubble like Tulip Mania where there was ultimately no underlying reason for tulips to be valued so highly. An inflection bubble is where we get the direction right (AI is a big deal), but the magnitude wrong (shit, we overspent on CapEx). Not every AI company can and will survive. There will only be a select few once the dust settles. And since AI seems to be what's driving the market these days, I think the market will close the end of this year down (measured as the performance of the S&P 500).
Continued AI adoption: That said, AI will continue to change the way we all live and work. While this is going to put some people out of a job, my bias is an optimistic one in that new technologies tend to create new opportunities and generally grow the overall economy. However, I think that at least two enormous internet-type shifts are underway. One, AI is creating a massive productivity leverage for the people and firms that know how to harness it and, two, the backend of the global financial market is moving "onchain." These are profound shifts that I, unfortunately, think will lead to even more social and political division in the short term. A government somewhere in the world will respond with a universal basic income.
AI bubble impact on real estate: An AI bubble bursting will generally help the real estate market as investors look for returns somewhere else, with the exception of the data center market. It will also create downward pressure on interest rates (which, in the US, remain the highest they have been since the Great Recession in 2008). As we know, lower rates help boost the values of highly-levered assets like real estate.
AR/VR/AI for design and construction coordination: I was blown away the first time I tried Apple Vision Pro. It's a magical experience. But it has failed as a consumer product and who knows what Apple will launch next. Regardless, this year we will see clear use cases emerge for AR, VR, and smart glasses. I'd like to see the problems of design and construction coordination get immediately solved because they're massive and costly and they have yet to be solved.
Mainstream tokenization: In yesterday's post, I spoke about the lack of a breakout consumer-facing web3 app in 2025 (with honourable mention going to the Base app). But perhaps one of the big stories of last year was stablecoins entering the mainstream. Most people now agree they have achieved product-market fit. This is crypto solving real problems (cheap/fast cross-border remittances, payments, etc) with users not needing to think or care about the underlying blockchain technology. In 2026, we will see a noteworthy office building or apartment building get tokenized on the Ethereum blockchain.
Autonomous vehicles: Last year, I predicted that autonomous vehicles were going to have a year, and it certainly felt that way. This year will be the first year that I ride in one. I came close on a layover in San Francisco in December. I considered leaving the airport and taking one to Apple Park. But I would have been cutting it too close. In 2026, we will see an insurer refuse to cover a human driver for the first time, marking a clear global shift toward autonomy. Already, none of us should be driving cars anymore looking at current safety data.
Polycentric world: Some have argued that 2025 marked the end of globalization. I'm not sure that is accurate. I think it marked the end of the US-led post-war world order and the acceleration of a more polycentric world order. It was the start of greater US insularity. In 2026, Canada will start to see the benefits of this shift. What it is doing is shaking us out of complacency and forcing us to look east to Europe and west to Asia, as opposed to just south to the US.
What are your predictions for the year ahead?
The word "speculation" usually has negative connotations, especially in the world of finance. That's why you'll hear people deride "condo speculators" and talk about things like crypto as being rat poison. Buying something with the sole hope that someone will pay more for it later is viewed as a negative act.
But is this a fair characterization?
Speculation is fundamental to how markets work. It happens when people bet on some unknowable future rather than on present fundamentals. This is an important feature because it's how new technologies and new business models get funded. Without it, we'd only ever fund what is knowable and what already exists.
This doesn't mean that speculation won't lead to failures — by definition it has to. It's uncharted territory. But consider what speculation has advanced along the way: railway networks, utility infrastructure, the internet, crypto, and AI, among many other things. And in the case of condo speculators, the result was that more, rather than less, housing got built.
That's a good thing.
So I think there's an argument to be made that we actually need more speculation in Canada. We need more risk taking and we need people betting on the future, even in the face of uncertainty. Because when you do that, eventually you end up creating it.
Erica Alini of The Globe and Mail just published this article called, "The era of the shoebox condo is over." You should read it, and not just because I'm quoted in it. One thing that I appreciate about the article is that it gets into some of the development economics underlying new projects.
The high-level math provided by Bryn Davidson of Lanefab (Vancouver) once again shows that land is the residual claimant in a pro forma and that the price developers can feasibly pay needs to be greater than the status-quo value. It's exactly what I was getting at in this recent post about the Impossible Toronto publication.
The other thing I'd like to highlight is the following chart showing the share of three-bedroom apartments in newly built condominiums and purpose-built rentals in the city:
The best part about making predictions for a year ahead is that at the end of the year you get to look back with humility on what you were thinking at the time and realize how much you missed and how different things turned out.
So, what might happen in 2026?
Condominium development in Toronto: I think 2026 will be an important turning point year. If I keep saying this, at some point I'll be right, right? 2026 is the first year where we will start to see new condominium completions from the last cycle fall off significantly. Last year (2025), we were projecting nearly 32,000 condominium home completions. This year, it's projected to drop to ~17,487, with 2027 falling off even further as we head to almost no new supply (based on the current pipeline). What I think this means is that the first half of 2026 will still be painful as the market absorbs new inventory and the inventory from 2025 (including unsold units, units in default, and other scenarios), but that things will start to stabilize and feel better toward the end of 2026 and into 2027. New supply will now be delivering below the 10-year average for the first time in many years.
Purpose-built rental development in Toronto: The story since the condominium market turned in 2022 has been the flip to rental. But not all developers and sites can make this switch and, as I have argued before, the numbers suggest that it won't be enough to offset our dwindling new condominium supply. That said, I think rental rates will remain soft throughout 2026. The supply crunch we're headed toward will need a bit more time to be felt by the market. In the meantime, we will see the highly-amenitized purpose-built rental model fail. The strategy of using over-the-top amenities to drive high rents will finally fall apart in the current market environment. In its place will be a flight to value: boring rental models that offer a quality housing experience at reasonable prices.
Boutique end-user projects: In markets like Toronto and Vancouver, where the development landscape remains unfavourable, we will see a continued focus on smaller projects and projects catering exclusively to end-users. This demand segment is the most resilient and this re-orientation will help the next development cycle start on more solid footing.
Foreign buyer ban: The Canadian federal government will relax the foreign buyer ban (which is set to expire on January 1, 2027) and allow foreigners to buy pre-construction homes. There are already rumblings about this so I acknowledge this isn't that bold a prediction. But beyond just relaxing the ban, I think government will start actively courting foreign capital to help solve our housing needs.
AI bubble: 2026 will be the year that the AI bubble bursts. Not because AI isn't powerful tech that will continue to change the world, but because we are, in the words of investor Howard Marks, in an "inflection bubble." This is different from a fake bubble like Tulip Mania where there was ultimately no underlying reason for tulips to be valued so highly. An inflection bubble is where we get the direction right (AI is a big deal), but the magnitude wrong (shit, we overspent on CapEx). Not every AI company can and will survive. There will only be a select few once the dust settles. And since AI seems to be what's driving the market these days, I think the market will close the end of this year down (measured as the performance of the S&P 500).
Continued AI adoption: That said, AI will continue to change the way we all live and work. While this is going to put some people out of a job, my bias is an optimistic one in that new technologies tend to create new opportunities and generally grow the overall economy. However, I think that at least two enormous internet-type shifts are underway. One, AI is creating a massive productivity leverage for the people and firms that know how to harness it and, two, the backend of the global financial market is moving "onchain." These are profound shifts that I, unfortunately, think will lead to even more social and political division in the short term. A government somewhere in the world will respond with a universal basic income.
AI bubble impact on real estate: An AI bubble bursting will generally help the real estate market as investors look for returns somewhere else, with the exception of the data center market. It will also create downward pressure on interest rates (which, in the US, remain the highest they have been since the Great Recession in 2008). As we know, lower rates help boost the values of highly-levered assets like real estate.
AR/VR/AI for design and construction coordination: I was blown away the first time I tried Apple Vision Pro. It's a magical experience. But it has failed as a consumer product and who knows what Apple will launch next. Regardless, this year we will see clear use cases emerge for AR, VR, and smart glasses. I'd like to see the problems of design and construction coordination get immediately solved because they're massive and costly and they have yet to be solved.
Mainstream tokenization: In yesterday's post, I spoke about the lack of a breakout consumer-facing web3 app in 2025 (with honourable mention going to the Base app). But perhaps one of the big stories of last year was stablecoins entering the mainstream. Most people now agree they have achieved product-market fit. This is crypto solving real problems (cheap/fast cross-border remittances, payments, etc) with users not needing to think or care about the underlying blockchain technology. In 2026, we will see a noteworthy office building or apartment building get tokenized on the Ethereum blockchain.
Autonomous vehicles: Last year, I predicted that autonomous vehicles were going to have a year, and it certainly felt that way. This year will be the first year that I ride in one. I came close on a layover in San Francisco in December. I considered leaving the airport and taking one to Apple Park. But I would have been cutting it too close. In 2026, we will see an insurer refuse to cover a human driver for the first time, marking a clear global shift toward autonomy. Already, none of us should be driving cars anymore looking at current safety data.
Polycentric world: Some have argued that 2025 marked the end of globalization. I'm not sure that is accurate. I think it marked the end of the US-led post-war world order and the acceleration of a more polycentric world order. It was the start of greater US insularity. In 2026, Canada will start to see the benefits of this shift. What it is doing is shaking us out of complacency and forcing us to look east to Europe and west to Asia, as opposed to just south to the US.
What are your predictions for the year ahead?
The word "speculation" usually has negative connotations, especially in the world of finance. That's why you'll hear people deride "condo speculators" and talk about things like crypto as being rat poison. Buying something with the sole hope that someone will pay more for it later is viewed as a negative act.
But is this a fair characterization?
Speculation is fundamental to how markets work. It happens when people bet on some unknowable future rather than on present fundamentals. This is an important feature because it's how new technologies and new business models get funded. Without it, we'd only ever fund what is knowable and what already exists.
This doesn't mean that speculation won't lead to failures — by definition it has to. It's uncharted territory. But consider what speculation has advanced along the way: railway networks, utility infrastructure, the internet, crypto, and AI, among many other things. And in the case of condo speculators, the result was that more, rather than less, housing got built.
That's a good thing.
So I think there's an argument to be made that we actually need more speculation in Canada. We need more risk taking and we need people betting on the future, even in the face of uncertainty. Because when you do that, eventually you end up creating it.
Erica Alini of The Globe and Mail just published this article called, "The era of the shoebox condo is over." You should read it, and not just because I'm quoted in it. One thing that I appreciate about the article is that it gets into some of the development economics underlying new projects.
The high-level math provided by Bryn Davidson of Lanefab (Vancouver) once again shows that land is the residual claimant in a pro forma and that the price developers can feasibly pay needs to be greater than the status-quo value. It's exactly what I was getting at in this recent post about the Impossible Toronto publication.
The other thing I'd like to highlight is the following chart showing the share of three-bedroom apartments in newly built condominiums and purpose-built rentals in the city:
What's interesting about this six-year period of completions is that there isn't a meaningful difference between condominiums and rentals. Average unit sizes as a whole tend to be slightly larger in rental projects, but in terms of the share of three-bedroom suites and the average size of those three-bedrooms, the differences aren't meaningful.
This suggests that it's less about investors "distorting" the market (see pundits talking about the condo market), and more about the fact that the demand isn't there. And the reason the demand isn't there is because these types of homes are expensive. If you can afford $5,000 per month in rent, you generally have some options.
Table from the Globe and Mail; cover photo by Lotus Design N Print on Unsplash
What's interesting about this six-year period of completions is that there isn't a meaningful difference between condominiums and rentals. Average unit sizes as a whole tend to be slightly larger in rental projects, but in terms of the share of three-bedroom suites and the average size of those three-bedrooms, the differences aren't meaningful.
This suggests that it's less about investors "distorting" the market (see pundits talking about the condo market), and more about the fact that the demand isn't there. And the reason the demand isn't there is because these types of homes are expensive. If you can afford $5,000 per month in rent, you generally have some options.
Table from the Globe and Mail; cover photo by Lotus Design N Print on Unsplash
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