Toronto Condo Supply Drops 98% as Government Policies Slow New Construction

Written by:

Rudi Davis

Date:

09 Apr 2026

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Toronto’s condominium market is facing a sharp collapse in new supply. Pre-construction starts have plunged from around 35,000 units annually to just 500, according to Andy Taylor, Senior Vice President of Sales at Sotheby’s International Realty Canada. This 98.6 percent decline is the direct result of overlapping government policies aimed at cooling affordability pressures and curbing speculative investment. While these measures have reduced demand, they have also created an acute supply shock. Industry experts believe this will drive rapid price increases within the next five years as demand returns.

The contraction in pre-construction activity is not a cyclical market correction. It is a response to a series of policy actions, including the escalation of Ontario’s non-resident tax from 15 percent to 25 percent, a federal ban on foreign purchases of residential property in urban areas effective through the end of 2026, and tighter financing conditions that have made new projects economically unviable for many builders.

How Policy Reduced New Supply

Toronto’s condo boom, which began in the early 2000s, was fueled by urban intensification policies and investor activity. The provincial greenbelt restricted low-rise development outside the city, directing builders into high-rise construction downtown. Investors, both domestic and international, accounted for about 40 percent of new condo purchases, turning these units into essential rental stock in a city with little purpose-built rental development.

As prices rose and affordability eroded, policymakers responded with measures to cool demand. The non-resident tax and federal purchase ban targeted foreign buyers. Higher interest rates and stricter mortgage rules further reduced local investor activity. These interventions slowed demand but also undermined the economics of pre-construction development. Developers rely on strong pre-sales to secure financing. With fewer buyers, many projects stalled or were canceled. The result is a supply pipeline that has nearly dried up.

Taylor describes the impact directly: “In Toronto alone, we were doing about 35,000 new units a year in condos, and we’re down to about 500.”

A Supply Shortage Is Coming

Industry observers warn that today’s supply collapse will not be felt immediately. It will create a significant inventory shortage within five years. As the market absorbs existing inventory and demand stabilizes, Toronto will face a severe housing shortage, setting the stage for rapid price appreciation.

Taylor predicts that “when the market and people come back into the market, we’re going to have no inventory and prices shoot up again.” The lag between policy action and its effect on housing supply means the consequences of today’s interventions will become apparent only in the mid- to late-2020s. By that point, reversing course will be difficult and costly. The city could face another affordability crisis, this time driven by insufficient supply rather than runaway demand.

Some investors are already repositioning to take advantage of this dynamic, acquiring assets at current depressed prices in anticipation of future scarcity.

Mid-Market vs. Luxury Condos

The supply collapse has affected Toronto’s condo market unevenly. Mid-market properties have seen the steepest price declines, while luxury condos have held their value more effectively. Taylor estimates that mid-market condos have dropped 30 to 40 percent in value. Units that once sold for $1,600 to $1,800 per square foot are now trading at $1,200 per square foot.

Luxury condos have experienced more modest declines. Taylor points to a recent sale at the Ritz-Carlton Residences, where pricing has slipped from $2,000 to $2,100 per square foot three years ago to about $1,800 per square foot today, a drop of roughly 10 percent. The relative stability in the luxury segment reflects that sellers are typically high-net-worth individuals or end users who can afford to wait for better conditions, rather than investors under financial pressure.

This divergence is structural. Mid-market condos are often owned by investors who bought pre-construction as rentals and now face negative cash flow or refinancing risks. Luxury condos are more likely to be owned outright, with sellers less motivated to accept discounts in a weak market.

Buying Opportunities and Risks

For buyers with capital and a long-term outlook, current conditions present a rare opportunity. Depressed prices, limited new supply, and the prospect of renewed demand create favorable conditions for strategic acquisitions. Taylor argues that “it’s a really good opportunity for people to be taking advantage of some of these great buying opportunities.”

Risks remain. The timing of any market recovery is uncertain, and buyers must be prepared to hold assets through a potentially prolonged period of weak conditions. The policy environment is also unpredictable. Further government action could delay or alter the expected supply-demand imbalance. Mid-market condos offer the largest discounts but also the greatest risk of continued weakness. Luxury units provide greater stability but less upside for investors focused purely on price appreciation.

Government Response and Outlook

Policymakers are beginning to recognize the unintended consequences of their interventions. New initiatives to encourage construction are being discussed, but the lag between policy changes and actual project delivery means any new supply will take years to reach the market. The federal ban on non-resident purchases is set to expire at the end of 2026, which could provide a modest boost to demand if not renewed. The 25 percent non-resident tax in Ontario remains, and there is little clarity on whether the government will take further steps to attract international capital or accelerate development.

The market remains gridlocked. Sellers are holding firm on pricing, unwilling to accept steep discounts unless forced by circumstances such as divorce, relocation, or financial distress. Buyers are waiting for greater certainty, and the lack of viable pre-sales continues to stall developers. Transactions occur only when one side has a compelling reason to act, leaving the market thin and illiquid.

Why the Market Is Stalled

Short-term interventions to improve affordability have created a long-term supply crisis that will be difficult to reverse. The failure to balance demand management with incentives for new construction has left Toronto’s condo market vulnerable to a future price spike and renewed affordability pressures.

The key question for market participants is whether the government will allow the non-resident purchase ban to lapse and whether it will introduce new incentives for construction. If the policy environment stabilizes and demand returns, the supply shortage predicted by Taylor and others could materialize quickly, driving sharp price appreciation. If restrictive policies remain or are strengthened, the market could stay weak, with the supply crisis postponed but not avoided.

What Buyers Should Watch Next

Toronto’s condo market offers both risk and opportunity. Investors with patience and capital may find value in today’s discounted prices, particularly if they believe supply shortages will drive future appreciation. The uncertain policy environment and the risk of prolonged market weakness mean that timing and asset selection are critical.

The next two to five years will be defined by how policymakers respond. Whether they adjust course to encourage new construction and attract investment, or maintain restrictions in the name of affordability, will determine whether Toronto’s condo market rebounds with a price upswing or remains in stagnation with the supply crisis drawing closer.