A condo catastrophe may be about to unfold in the GTA. Is it a contagion?
Toronto is facing a deepening condo market fiasco as demand and prices plunge, with a flood of new supply set to come onstream in the months ahead. That darkening picture has sparked fears of a protracted housing slump across the Greater Toronto Area (GTA) – and raised questions of whether the rest of Canada could also be vulnerable to the same condo market pain points.
A sharp fall in renter demand for investor-owned condo properties has been the crux of the Toronto crisis, while a jump in interest rates over recent years has spiked mortgage costs above rents (also falling) and turned those units into a cashflow-negative nightmare for owners.
Other markets with strong reliance on high rental demand and investor appetite could also be prone to at least a condo market correction, according to Charles St-Arnaud (pictured top), chief economist at Alberta Central.
That’s partly because immigration numbers are set to fall across Canada as the Carney government plans to cap the number of international students and temporary foreign workers in the years ahead – prime drivers of rental demand.
“I think a lot of the condo markets in many cities will face some relatively strong headwinds over the next two years,” St-Arnaud told Canadian Mortgage Professional. “One [reason] is demographic. There’ll be a reduction in non-permanent residents in Canada and most likely those non-permanent residents are renters. They’re not going to be a house if they’re on a work permit.
“As a segment of that rental market, you have those investors who bought small condos and are renting them, seeing the demand for their units coming down. We’ve seen in most cities in Canada in recent months a decline in asking rents. So that also reduces the incentive for would-be investors to come into the condo market.”
For Toronto condo owners needing more space, selling their current property now often yields less equity than anticipated. Christelle Mwamba of Mortgage Scout highlights this challenge, noting a significant drop in city centre condo prices.https://t.co/aYvatwHmry
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 23, 2025
How many ‘dog-crate’ condos are in other markets?
Much has been written about the substandard type of condo unit whose popularity among investors skyrocketed in Toronto before the market’s recent nosedive: sub-500-square-foot properties whose owners would never dream of living in them.
It’s unclear whether other markets have been inundated with those so-called “dog-crate” condo types as much as the GTA, but St-Arnaud said plenty of cities are also seeing a surge of units built specifically so they can be rented out.
“We’re seeing a lot of purpose-built types of building, new supply of rental, coming on the market. At the same time, that’s also putting some downward pressure on rents and that makes the whole decision [less attractive] for investors to either buy a condo or to rent,” he said. “There are those who already bought a condo two years ago and have been renting it, and then they realized the rent might not cover costs.
“That’s not just Toronto. I can imagine we’ll see that in Vancouver to some extent. Even in Calgary, we might see the same impact because with demographic change coast to coast, we’re going to see some downward pressure on rents in many big cities.”
Tariff war continues to pummel Ontario’s economy
There’s little question that a gloomy economic outlook for Ontario because of its exposure to industries impacted by Donald Trump’s tariff war is also part of the reason homebuyers and investors are flocking to the sidelines.
Toronto is the “epicentre” of the current national housing market cooldown, St-Arnaud said, partly because the Ontario economy has borne the brunt of those tariffs, shedding over 60,000 jobs in March and April alone.
The big question for other housing markets is whether that economic slowdown can be contained to a single province, and if it could start causing jitters for homebuyers in markets outside Ontario.
“I always say the real estate market is basically a collection of very local markets. You can’t choose between a house in Toronto and a house in Vancouver if you’re living in Winnipeg,” St-Arnaud said. “You have to go buy in your local market.
“Some of the general story could influence that. For instance, in Vancouver, if we start to see weaker growth nationally, that could affect the confidence of would-be buyers in the province.”
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