According to recent data from Altus, Toronto recorded 42 new condominium sales in the month of May. That's a 97% decrease since May 2021, for a city of over 3 million people (city proper, not the metro area). So for all intents and purposes, the market is shut off. And it has resulted in upwards of 12,000 construction sector jobs disappearing over the last 12 months in Ontario. Moreover, it has left the Toronto Area with an unemployment rate that is close to 10%.

But that's not all.

The Missing Middle Initiative estimates that this dramatic decline in new home sales (which is more of a leading indicator than housing starts) could conservatively result in all three levels of government forgoing something like $6.6 billion in tax revenue each year. And within this lost revenue, there's something like a $2 billion reduction in revenue just from development charges (which don't get paid if developers aren't starting construction).

These are alarming figures that beg the question: How will government make up this shortfall? But once again, here's the thing. If development charges are intended to be "growth paying growth" then, in theory at least, development charge revenue shouldn't matter. The growth has disappeared and so the things that DCs pay for should also disappear — right?

In practice, we know that it's more nuanced than this and that growth pays for a lot of stuff. The clearest evidence of this is likely to rear its head when the DC funds run out. We're going to be forced to plug the hole with something else. So over the long term, I actually think this will prove to be a positive outcome for the housing market. Because it's going to necessarily wean us off the practice of overtaxing new homes.

There's no other choice right now.

Cover photo by Dinil Fernando on Unsplash

The Globe and Mail just published this piece about job cuts across the real estate industry. And pictured in the article is my friend Norm Li, who runs a renowned visualization company here in Toronto, but just recently had to lay off 75% of his team.

This is sad — and quite a departure from the way things were before 2022. You used to have to book Norm and his team many months in advance just to get in the queue. That's how busy they were creating visual content for the architecture and development industry.

But there's not much you can do when the market more or less shut offs. And Norm is not alone. The article estimates that there are some 536,300 jobs in the new construction sector in Canada. And based on the way the above chart is looking, up to 170,000 of these jobs are currently at risk of disappearing.

If you look at the comment section of the article you'll find that a lot of people either couldn't care less or actually relish the fact that the real estate industry is shedding jobs. A lot of people responded with "good." This is not at all surprising (and not just because it's, you know, a comment section). Homes remain unaffordable in Canada.

In the first quarter of this year, RBC estimated that the share of income needed to cover homeownership costs in Toronto is still averaging over 60%. And so for many/most people, the new construction sector isn't a source of personal utility; it's a creator of things that aren't affordable.

Oh, you can't make money anymore? Good.

But here's a better kind of "good" to consider: as painful as the current conditions are for everyone in the industry — myself included — the market is being forced into a reset. Among many other things, municipalities are rethinking their development charges, construction costs are coming down, and nearly every developer seems to be pivoting their new-home business toward bona fide end users (as opposed to investors).

What I think this means is that when the market does return — and it, of course, will — it is highly likely that it will be rooted in sounder fundamentals. And this, I would say, is good.

Cover photo by Maarten van den Heuvel on Unsplash; pre-construction home sales chart from the Globe and Mail