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Throughout October UrbanToronto is featuring a special State of Housing editorial series to examine the pressing housing challenges facing Toronto and the Greater Golden Horseshoe.
The Greater Toronto Area’s new condominium market has long been the subject of heated debate. For years, critics have railed against investors, arguing that their purchases of pre-construction units drive up prices, crowd out end-users, and reduce affordability. The logic seems simple: if fewer investors bought, more homes would be available to people who actually want to live in them. But the truth is far more complicated. Investors have been the linchpin of the GTA’s high-rise housing delivery system. Many of you wanted to get rid of them via policy, but the market has now done that, and we now face the unintended consequence of diminished housing production.
At the heart of condo development lies one fundamental constraint: financing. Banks and other lenders will not advance hundreds of millions of dollars to build a tower without proof that the project will succeed (is it profitable, and can the borrowers pay them back?). The minimum threshold is typically 70% of units sold before a developer can qualify for construction financing. This isn’t arbitrary; it is a safeguard for lenders against project failure. Lenders became much more conservative following the 1980s housing crash; shocking right? If you want to go down a rabbit hole, take a look at the regulatory constraints and expectations that OSFI (Office of the Superintendent of Financial Institutions) places on federally regulated financial institutions in Canada when lending to residential condominium developers.
Some people will always claim that developers should just sell to people that intend to live in the units. However, end-users are reluctant to commit several years before taking possession. Few households are willing, or financially able, to put 15% to 20% down on a property that won’t be habitable for four or five years. There are risks: projects can be cancelled, timelines can stretch, and market conditions (and people’s lives) can shift dramatically by the time keys are handed over. By contrast, investors are uniquely positioned to step into this gap, and take these risks on your behalf, and they have been rewarded for taking those risks in the past. In summary, they treat pre-construction purchases as long-term equity commitments, absorbing risk in exchange for potential appreciation.
We are getting a lot of new condos built today, where investors did not get financially rewarded for taking those risks, in fact many are experiencing significant losses. But, those homes are built, and they are being rented out at rates well below their carrying costs.
We must remember that without this investor base, many projects would never launch, let alone be built. The system is not one developers necessarily prefer, but one that financing structures demand.
The Role of Investors in Expanding Supply
The surge in investor enthusiasm during the past decade unlocked an unprecedented wave of housing construction. With buyers willing to front cash years before occupancy, developers could meet financing requirements and break ground. This resulted in far more units being delivered than an alternative universe where projects were limited to rental housing.
Rental development requires a very different capital stack. Owners must contribute significant upfront equity, withstand years of lease-up risk, and bear the burden of long-term interest rates, cap rates, and tenant demand fluctuations. For many sites, the math simply does not work. Condominiums, financed through pre-sales, became the de facto mechanism for creating housing, AND, a large share of that housing eventually ended up in the rental pool via investor landlords. It is understood that these rented condo units do not have security of tenure or on-site professional property management, but they would not exist at all if the investor was not involved. Would you rather have something for lunch that isn’t your favourite meal, or nothing to eat at all?
Ironically, the very investors that critics blamed for fuelling prices were also the ones underwriting activity as a crowdfunded equity source for the production of tens of thousands of rental homes, allowing hundreds of thousands of people to live in high-quality accommodation.
The Market After Investors Step Back
Fast-forward to today, and the picture looks starkly different. With higher interest rates, weaker price growth, and negative cash flow realities, investors have largely stepped aside. Condo sales fell to under 5,000 units in 2024, the lowest level in decades. The likely result for 2025 will be even worse.
The consequence is already visible in the pipeline. Completions have peaked at over 30,000 condominium and rental units in the GTA over the last year, but by 2028 that figure is forecast to plunge to under 10,000. In other words, the homes that would have been started today (had investors been active), will not be there tomorrow. For households searching for an affordable home or a reasonably priced rental later this decade, the supply drought will be palpable.
This is the paradox: the absence of investors, celebrated by some, guarantees fewer homes and higher rents in the future.
Policy Misunderstandings and Public Sentiment
Much of the discourse around the condo market suffers from a misreading of development economics. Detractors often claim developers should “just build rental,” as though the choice is merely a matter of preference. But without deep-pocketed institutional partners, massive upfront equity, and patient capital, rental projects are not viable at scale. The investor-funded condo system may be imperfect, but it has been the only model capable of producing housing at the volumes Toronto needs.
Public frustration is understandable. Many would prefer a world in which every new tower delivered affordable family-sized rentals rather than micro-suites for speculative investors. Yet those utopian visions ignore financing, zoning, and cost realities. By dismantling the one mechanism that consistently generated supply, we risk worsening the very crisis we are trying to solve.
A Market Defined by Irony
The theme of today’s condo market can be summed up by the phrase: you got what you wanted, but we’re all worse off. Investor activity has cooled. Lenders are extremely conservative. And in this quieter market, there is no cavalry of end-users ready to take the place of the absent investors, and some magical bank willing to lend to developments with zero pre-sales. Instead, projects stall, cancellations mount, and the development pipeline dries up.
For those who opposed the investor-driven model, this might feel like victory. But the fallout will result in fewer completions, higher rents, and deepening scarcity, and this will ultimately harm renters, buyers, and communities across the GTA. Jobs are being lost, tax revenue isn’t being collected, and much needed infrastructure isn’t being built.
Looking Ahead
Despite what some pundits will tell you, demand for housing remains high. It just takes a while for the market to adjust to reality, and for prices and rents to recalibrate. But with the looming collapse in completions, the stage is set for significant upward pressure on rents and prices later in the decade.
The lesson for policymakers is clear: vilifying investors without offering an alternative financing model is counterproductive. If we want more rental housing, governments must help de-risk projects by providing tax incentives, lowering development charges, or directly participating in financing. If we want end-users to play a larger role in pre-construction, protections against cancellations and stronger consumer safeguards may help, but those are not the big bottlenecks or main reasons why end-users don’t purchase pre-construction high-rise condominiums.
The new condo market is not fundamentally broken, it is constrained by those that finance it, tax it, and regulate it. And until those rules, requirements and constraints change, investors remain an uncomfortable but indispensable part of the solution.
Investors are not going to solve the housing crisis, but they can prevent it from getting infinitely worse.
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Ben Myers is the President and founder of Bullpen Research & Consulting Inc., a boutique Canadian real estate advisory firm specialising in new-development housing research across Ontario.
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UrbanToronto’s research and data service, UTPro, provides comprehensive data on construction projects in the Greater Golden Horseshoe—from proposal through to completion. Other services include Instant Reports, downloadable snapshots based on location, and a daily subscription newsletter, New Development Insider, that tracks projects from initial application.
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Thank you to the companies joining UrbanToronto to celebrate State of Housing Month.
