“So far, [overbuilding] impacted only some regional markets and maybe not those that people would have expected,” Marc Pinsonneault, a senior economist with the National Bank, tells REP. “The reason people have a tendency to talk overbuilding [in Toronto and Vancouver] is because the number of dwellings under construction gave the impression that there was too much construction compared to the capacity of the market to absorb new dwellings.”
In heated markets like Toronto, Pinsonneault says those units enter the market completed and absorbed – via successful sales pre-construction – leading him to believe the market has not been overbuilt.
However, in places like Montreal, Regina, Saskatoon and Winnipeg, Pinsonneault says builders may have overestimated metrics like jobs growth and in-migration, which impact the market and have led to a higher number of completed and unabsorbed units. Still, Pinsonneault said the results of the study do not necessarily spell doom for these markets.
“Builders can manage the situation, just by not starting dwellings that if they don’t have an appropriate pre-sale rate,” he says. “I’m not concerned, I’m simply expecting homebuilders to take account of the situation and wait for high pre-sale rates [before breaking ground]. The market in these places will be looking to clear some unabsorbed completed units.”
Pinsonneault also acknowledged the impact of construction time on these statistics. Today’s trend in condos has more units in each building, while the buildings get taller and taller. As a result, units remain under construction for a longer period of time than was historically the norm.
“To put it simply, the same dwelling now stays in the statistics “under construction” about two times longer than it used to,” he says. “But it’s the same dwelling, so of course this produces an accumulation of condos under construction but that’s just because of the increased construction time. So if you try to purge the effect of increased construction time on the statistics, you realize the number of dwellings under construction these days, compared to the size of the market, is not out of historical norms.”
Despite the construction cranes that seemingly multiply in the skies, Toronto is not being overbuilt, claims a National Bank special report, which instead outlined some surprising markets that could face a surplus of unabsorbed new homes.