Ontario just announced a bailout program, selling it as a housing affordability measure. The province launched a $1.3 billion public-private partnership to buy stagnating developer inventory across Greater Toronto to convert into rentals. The plan clearly helps over-leveraged developers more than it helps with affordability. While intended to drum up investment, it may backfire by confirming market inefficiency. At least one Big Six bank has already warned investors it’s a bailout, and it’s not large enough to make a dent.
Ontario Announces $1.3B Partnership To Buy Unsold Toronto Condos
Ontario just announced a $1.3 billion partnership to turn roughly 2,200 unsold GTA condos into rental units. The province is using the new Building Ontario Fund (BOF) to buy already built condos. The BOF is the provincial counterpart to the controversial federal Canada Infrastructure Bank (CIB). Both partner with private investors to build profitable public infrastructure.
Investment firm High Art Capital is leading the deal, aiming to raise $1 billion in private investment, with Ontario’s BOF anchoring the deal with $300 million. The partnership will purchase blocks of at least 10 condos, built after January 1, 2023. Privately-run rental firms will manage them, and 25% of the units will be “affordable.”
We know what you’re thinking: this sounds like a bailout. Let’s review the definition: a bailout is financial support (loans, cash, asset purchases, etc.) to help a company or industry avoid a serious failure. It fits the definition, but we also have independent confirmation from a Big Six bank, so no need to guess.
“Cue the bailouts…” quips BMO senior economist Robert Kavcic, addressing the timing of tax reliefs shortly after the partnership was announced.
Ontario Also Rolling Out HST Exemptions For New Homes
Just a few days later, Ontario also announced plans for an HST exemption to help move unsold condos. It’s not just for first-time buyers, but investors are also eligible. The bill is set to lower costs for the investor-dominated market, but it also increases deficit liabilities. In other words, taxpayers will foot the bill for the diverted revenue.
“This is another move aimed at helping homebuilders clear out inventory. Recall an announcement earlier in the week that will see the Building Ontario Fund partner with the private sector to buy up unsold inventory for rental conversion,” explains Kavcic.
But how does it impact the market?
Ontario’s Toronto Real Estate Bailout Unlikely To Put A Dent In Pending Supply Glut
Quarterly supply of new GTHA condo apartments (index).
Source: Urbanation; Haver Analytics; BMO Capital Markets.
The plan adds demand, but is it enough to make a dent in the pending supply glut? Greater Toronto new home sales are coming in at some of the worst levels on record. At the same time, weak new home sales have allowed inventory to climb to rarely seen levels across the GTA.
“As it stands now, the new condo market is effectively dormant, with Urbanation reporting just 262 sales in Q4 (record low) against more than 20,000 unsold units. That’s almost 20 years of unsold inventory at the current sales pace,” warns Kavcic.
The problem is further compounded by the supply glut in the resale market, where condos trade for a steep discount. “There is also about 9 months of supply on the resale market, which might now be trading below replacement (building) cost anyway,” he adds.
Ultimately, absorbing 2,200 units barely dents a 20,000-unit supply glut. Sales are impossibly low, and the volume works out to just a few quarters of demand in a normal market. The province is deploying public capital to protect builder balance sheets, likely hoping it prevents a price correction. However, it’s a temporary liquidity lifeline that extends market inefficiencies. This reinforces the structural issues forming, like young adults fleeing to other provinces.
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