A cooling market for investment condos is likely to make housing affordability worse instead of better, according to the CEO of a major housing developer.
Michael Waters, CEO of the Minto Group, told BNN Bloomberg in an interview Monday that a slowdown in demand from investors in new condominium units is bad news for the overall housing market because it means new units won’t get built, exacerbating the supply problem.
A recent report from CIBC found that more than three-quarters of new condo investors with mortgages in Toronto were cash flow negative on their units. The city’s condo market is on track for its worst year for resales since 1997 and while that might seem like great news for renters or even potential buyers wishing to live in the units themselves, if investors aren’t buying new units simply won’t happen.
“You need those pre-construction sales as critical conditions for bank construction financing,” he said. “Without presales a project is just not going to start [and] as presales don’t materialize, construction on condos won’t happen,” he said.
That’s bad news for policymakers who are trying to increase the number of new units to keep up with the surging population.
Red tape also a problem
In addition to securing financing for new projects, Waters says another big hurdle that developers face is Canada’s regulatory regime. A recent World Bank report ranked Canada 33 out of 34 developed economies when it comes to the amount of time it takes to get construction approvals.
Waters welcomes government initiatives such as Ottawa’s National Housing Plan and the Ontario government’s Bill 185 to speed things up, “but we need to do a lot better,” he said.
