As we know -- because here's the data -- this is the current state of affairs:

The GTA condo market is in a state of economic lockdown. The math doesn’t make economic sense from both the demand side (investors) and the supply side (developers), leaving the market at a standstill.

The above excerpt is from a recent CIBC Capital Markets article by Benjamin Tal (CIBC) and Shawn Hildebrant (Urbanation). And what it ultimately means is that the supply of new condominiums in the GTA is falling and will continue to fall for the foreseeable future. Below are two charts, from the same article, that show that.

Because of this, I actually think that, if you need or want a place to live, right now is a near ideal time to buy a condominium, especially if it's from developer inventory (in an already completed project) or it's a resale. Of course, most people won't want to do this because they'd rather buy when most other people in the market want to buy. This is how markets tend to go.

It has been a while since the GTA has gone through one of these real estate cycles, but it is typical: developers are prone to both over-building and under-building. It simply takes too long to build a building, and so it is natural for there to be moments when supply and demand don't exactly line up.

Pre-selling condominiums is -- in theory only -- supposed to protect against too much overbuilding. But as we have spoken about many times before, it can be challenging for end users to buy a new home so far in advance. And so the new condominium market has come to rely on investors who want to buy early and then either sell later or rent later.

According to the above article (and MLS data), the share of newly completed condominiums used as rentals reached a peak of 34% in 2023. So a third of new condos. My gut tells me that the actual number is much higher. Many rentals never reach MLS. Overall, I think it's very safe to assume that the majority of new condominiums are owned by investors.

But right now, fewer investors want to own condominiums, which is why the number of resale listings has spiked this year:

This is, again, why I think right now is an excellent time to buy a condo. You know, be greedy when others... Regardless, this inventory will need to get absorbed and that will ultimately happen. Some of it will go to end users and some of it will go to investors who can make sense of the rental math and/or want to take a long view on Toronto. But if more goes to the former, we will be losing a lot of new rental housing.

At the same time, while all of this is going on, construction starts are likely going to remain depressed (chart 3 above). It's impossible to know how long this lasts, but at some point we will reach a moment in the cycle where we are under-building new housing. Maybe we're already there. Development simply can't turn on fast enough when demand spikes. There will almost always be a lag.

So, since the majority of new condominiums have been serving as new rental housing, there's a strong case to be made that at some point we will run into a potentially severe shortage of rentals. Condo investors are sometimes vilified in the media, but we will soon find out what happens when you take a big chunk of them out of the housing market.

It is disappointing to me that we often vilify all condominiums as being "luxury condos." I think the rhetoric is disingenuous and I think it distracts us from finding more productive solutions. As Mike Moffatt points out in this thread, if you look at virtually all major cities in Canada, the most affordable housing options are going to be condominiums and not low-rise freehold houses.

In his case, he looked at current for sale listings in London, Ontario, and found that for homes under $400k, about 81% of them were condominiums, and for homes over $1,200,000, only 4% of them were condominiums. Again: the real "luxury homes" are the low-rise houses that not the condos.

Now to be fair, John Pasalis is not wrong in responding to the thread and saying that on a per pound basis, or a per square foot basis, condominiums are actually more expensive. I've been saying this for years on the blog. When measured this way, mid-rise buildings are one of if not the most expensive housing typologies.

So John's argument is that, while condominiums may be the more affordable option for 1-2 person households, if you're a family in need of more space, low-rise housing is likely going to be more affordable for you on a per square foot basis. And I would agree with this statement.

The problem with this approach in the real world, though, is that people don't buy and afford homes based on this metric. You can't go to a bank and say, "I want to buy this house for $1.7 million dollars because it's only $680 per square foot when I include the basement, and that's better value than this 700 square foot condominium selling for $1,400 psf."

Sorry, the bank is going to tell you what total price you can afford based on your income. And that's why condominiums in our market have tended to serve as a critical entry point for first-time buyers. They're the most affordable option in terms of their total sale price.

So in my view, labelling all condominiums as "luxury" is not exactly productive. It ignores their role in providing more affordable homes; it overlooks the supply constraint that low-rise houses represent in most of our cities; and it's a distraction from the more systemic issue at hand: how do we make housing more affordable for everyone, including families?

Photo by Marcos Paulo Prado on Unsplash

If you happen to have made boatloads of money in crypto (which sadly isn't me), one sensible thing you could do is put some of that money into luxury residential real estate. You know, to diversify your portfolio.

According to this recent WSJ article, it is already happening, with some developers and some homeowners now accepting cryptocurrencies in lieu of US dollars and other fiat currencies. This is helpful if you've managed to accumulate a bunch of crypto and don't want to convert it. It can also be easier when it comes to moving the funds around:

Avi Dabir, vice president of business development at FTX US, said he sees real estate as a growing sector for the company because crypto transactions are faster and more efficient than traditional deals, which rely on an often-cumbersome banking system.“If I want to send a wire transfer today using my traditional bank account, it’s got to be banking hours, I need to make sure I hit that wire cutoff time and I can’t do it on the weekends,” he said. “That’s not a problem with cryptocurrency. It’s open 24/7.”

But of course it is still early days for crypto. The article suggests that most developers and owners are arranging for any crypto received to be immediately converted into US dollars at closing. This is presumably because of how volatile cryptocurrencies tend to be -- at least right now.

To accept crypto, PMG had to partner with a regulated exchange that could quickly convert crypto to U.S. dollars, then convince an escrow agent to accept down payments from the exchange, rather than directly from the developer. Mr. Shear said most escrow agents looked at him like he was crazy, but “20 lawyers, one year later, and a lot of brain damage, everybody got comfortable.”

There are also tax considerations (that I am really not an expert on). If you bought $100 worth of Ethereum and it is now worth $10 million, you are responsible for paying tax on this gain if/when you sell, trade, or otherwise dispose of the crypto. And it is my understanding that if you were to use this $10 million in Ethereum to buy something like a condo in Miami, it would also be considered a taxable event.

Maybe all of this becomes commonplace or maybe it doesn't. But it sure is interesting to see crypto already starting to flow into hard assets like real estate.