Understanding the Troubled Condo Market

I was at a panel this week with various developers talking about Toronto’s condo market, and the most useful part of the condo discussion was that it cut through a lot of the noise.

The condo market is not “over.” What is over, at least for now, is the era where almost anything could get financed, sold, assigned, hyped, and passed off as a viable project just because it was in Toronto.

A lot of the pain today seems concentrated in the places that always felt shaky. Product in areas people did not really want to live in. Projects where there was no real neighbourhood pull, no reason to linger, no street life, and no deeper housing logic beyond “it will probably sell.” Those were the first to get stuck. Not surprisingly, those were also often the sites with riskier lending behind them and too much optimism baked into the land value. That part matters.

Because when people say “the condo market is in trouble,” what they often really mean is that a certain kind of condo deal is in trouble. The sloppier version. The over-entitled land play. The tower that made sense only if everything went perfectly. The spreadsheet project. The one where everybody assumed someone else would take the risk later.

Now that the music has stopped, the cleanup is ugly.

The panel talked about half-built projects, raw land sites in distress, completed buildings where buyers are walking away from deposits, and lenders trying to figure out how to limit losses. In some cases, units are not moving at the pace needed to support the financing. In others, purchasers are simply bailing. That is forcing some lenders into a very uncomfortable position where they may need to sit on land, restructure, or effectively become long-term owners rather than realize the loss today.

That is not a healthy market. But it is also not the whole market.

And that was probably the most important distinction made on stage.

The good will still be good. The great will survive. The junk will get exposed. That feels right to me.

One point that came up repeatedly was that not every condo site can simply become a rental site. This is one of those things people say casually, as if it is an easy pivot, but it is not. A rental building needs a different design logic, different unit mix, different operations, different amenities, different leasing setup, and a different capital stack. In many cases, converting a condo concept to purpose-built rental means starting over, not tweaking a few floorplans. So no, rental is not some silver bullet that magically saves every broken condo deal.

There was also a surprisingly practical point made about scale. Many of the condo sites that got pushed too far were trying to do too much. Too much height, too much entitlement, too much fantasy. Meanwhile, there was a quieter acknowledgement that mid-rise projects on major Toronto streets are still working. Not all of them, not effortlessly, but the better-capitalized, more sensible 10 to 12 storey projects on good avenues are still getting built. That should not be ignored.

Because one of the deeper problems here is that the city has spent years handing out density that often is not economically buildable in the first place. On paper, it looks ambitious. In reality, some of it is nonsense. A site being zoned for 60 storeys does not mean a 60-storey building makes any sense there, financially or otherwise. And a lot of people made the mistake of valuing land as if paper density automatically translated into real value. It does not.

So what happens next?

My read is that this is a necessary reset, even if it is painful. There will be fallout. Some lenders will have to get more creative. Some developers will disappear. Some land values will need to come back to earth. Some projects that looked viable in 2021 or 2022 will not be viable again until the next cycle. But this is also how markets clear.

Construction costs sound like they are easing somewhat. The weaker players are being exposed. And eventually, that should create room for more disciplined projects to move forward again.

The bigger lesson, though, is that Toronto got too comfortable believing condo demand was endless and that any site, in any location, with enough height and enough marketing, could become a successful building. That was never true.

People still want condos. They just do not want every condo.

And that is probably where the market is headed next. Fewer dumb projects. Fewer fantasy land values. More scrutiny on location, livability, design, and actual end-user demand.

Which, honestly, is probably healthier for the city in the long run.

The condo market is not dead. The nonsense is.