How Long Can the Condo Boom Last?

Clearing by Payton Chung
Clearing by Payton Chung

The condominium boom is a part of the Canadian real estate sector that has supported the recovery of the national economy. The condo supply is still growing and pessimists warn that nothing can last forever. Why are condos so popular, and is there really a chance the boom will crash soon?

Three reasons

For the past few years, Canada has met a condo boom — almost all of its major cities have been following this trend, and condos have been springing up like wildfire for the past few years across the country. There are three simple reasons: lack of space, urbanization, and affordability.

Condominiums don’t require as much space as houses, so building a condo is both economical and space-saving. Urbanization creates the demand for many new homes in quite a short time, so why not build condos that are cheaper than a new house? Home-buyers, retiring baby boomers, and immigrants are the most common condo buyers.

Since last year, condos have been spreading to the suburbs. “The high-rise housing craze has started to spread to the suburbs and it’s a trend which will continue to grow,” said Stephen Dupuis, chief executive of Building Industry and Land Development.

Condos in Calgary

Construction by Jeramey Jannene
Construction by Jeramey Jannene

The number of condo towers in Calgary is also growing. According to the Calgary Herald, the city is currently reviewing at least four applications for residential towers in the downtown area. “It says to me people are pretty optimistic about the future, any of these plans are probably a two-year build, everyone’s looking two, three years out,” says David Watson, the city’s general manager of planning, development, and assessment.

Today, economic indicators are quite positive about the condo market coming back into balance after a period of prevailing supply over demand. “Condo sales bounced back this month [June 2011], and we now have less than four months of supply on the market. Stronger condo sales, combined with a decline in inventory, will lend more balance to this market in the months to come,” says Sano Stante, president of the Calgary Real Estate Board.

The Boom About to Crash?

Supply is growing and some analysts are afraid that there is going to be a glut of supply. According to new analyses, demographics, immigration, and limited land in the biggest markets may help the boom to avoid collapse.

“If you look at the city planners’ projections for demand versus projects on stream, we still don’t have enough condominium projects underway in our big cities,” said Phil Soper, chief executive of Royal LePage.

Still, there are worries about interest rates. David Madani, economist at Capital Economics, warns that income and population won’t keep pace and predicts a cumulative 25 per cent decline in the national average price over the next three years. “There’s a really large disconnect between house prices and the fundamentals. We don’t think that this is sustainable,” he said.

Nothing can last forever. We can probably stay calm in the short term. But sooner or later, the strong condo market will weaken.

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