Canada's Condo Market Is Collapsing—by Design

There's a half-built concrete skeleton sitting near Ottawa's Experimental Farm — a two-tower project that broke ground in 2022 at what turned out to be the exact peak of Canada's housing market. One co-developer filed for creditor protection not long after shovels hit dirt. The other is still trying to secure financing to finish what's now being reworked into a rental building. It's not a condo, technically. But as Richard Coffin of The Plain Bagel points out in a recent deep-dive on Canada's housing mess, it's a pretty accurate visual for the state of the condo sector right now.

Developers cancelling projects. Creditor protection filings stacking up. Unsold inventory sitting like furniture at an estate sale. And somewhere in the middle of all this, a federal government buying up vacant units and offering nine-figure tax breaks to get people to buy new ones.

The uncomfortable question Coffin keeps returning to: wasn't a condo market correction supposed to be the goal?

The Geography of Pain

First, a necessary clarification about what's actually happening and where. Canada's national housing index has dropped roughly a fifth from its 2022 peak — significant, but uneven. Most provinces have actually seen prices rise. Newfoundland, Saskatchewan, Alberta — all doing reasonably well. The correction is concentrated almost entirely in Ontario and British Columbia.

That regional framing sounds like it should contain the damage. It doesn't. Greater Toronto and Greater Vancouver together account for roughly a quarter of Canada's population. They're the country's financial centres. When lending gets tight there, it ripples. As Coffin puts it, the instability in these markets has led banks to largely tighten their mortgage approval criteria across the country — "like your uncle Jerry who likes to debate politics at Thanksgiving dinner, it's all been enough to ruin the party for everyone else."

Within those provinces, condos have taken the worst of it. Condo sales in Toronto fell over 90% from their peak. Vancouver saw sales drop by nearly two-thirds. Both cities are now at multi-decade lows. Unsold condo inventory at completion has increased roughly 4.5 times since 2022.

Three Things That Broke at Once

The selloff isn't mysterious. Three forces converged.

Population. Canada went from its highest population growth rate since 1957 — driven by immigration — to its first annual population decline since Confederation in 1867, according to Coffin's reporting. The pivot was deliberate: Prime Minister Mark Carney's government has been cutting non-permanent resident numbers aggressively, targeting levels below 5% of the population, citing housing pressure as a key rationale. The irony is direct: the same housing crisis that drove the policy change is now being deepened by the population contraction it produced. Non-permanent residents overwhelmingly settled in Toronto and Vancouver. When they leave, that demand leaves with them.

Interest rates. When the Bank of Canada hiked rates to fight pandemic-era inflation, mortgage payments as a share of median income spiked sharply, according to figures Coffin cites. Canadian mortgages don't lock in the way American ones do — most fix for only five years before requiring renewal at market rates, which means buyers who borrowed cheap during the boom are now renewing at substantially higher costs. Delinquency rates have risen, though Coffin notes they remain below pre-pandemic levels for now.

The economy. Canada recorded back-to-back GDP contractions in early 2026 — a technical recession. As TD's downgraded market forecast put it, as quoted in the video: "housing remains constrained by a subdued economy, heightened uncertainty, and ongoing cost of living pressures." Committing several hundred thousand dollars to a glass box when the economy is contracting requires a certain amount of confidence that's currently hard to come by.

The Investor Problem Nobody Wants to Talk About

Here's where it gets structurally complicated, and where Coffin's analysis sharpens.

Canada's condo development model runs on pre-sales. To get financing, developers typically need around 70% of units sold before construction begins. That's a hard sell to a family that doesn't know where they'll be living in three to five years. So the market developed a workaround: investors.

By 2022, roughly 70% of pre-construction condo buyers were investors — people planning to rent or flip. The model worked, spectacularly, for years. Developers got their financing threshold. Investors got appreciation. Assignment flips — where someone would put a deposit on a pre-construction unit and sell the right to purchase it before the building was even finished — became a cottage industry.

The problem is what developers built when they optimized for investor priorities rather than resident priorities. As developer Puian Sappor, who commissioned a survey on Toronto condo quality, explained it: "end users make a nuanced assessment of livability and affordability, where investors often place outsized priority on price and efficiency." Small units command higher rent per square foot. Build cheap, build fast, build small. Surveys have found that a large majority of Toronto condo buyers believe units were built with subpar materials and most think the city needs better quality construction.

When prices fell and rates rose, the investor calculus flipped. The assignment flip market collapsed. Pre-sale prices fell sharply from their peak. Investors who had committed to units had to choose between eating their deposit or closing on a property now worth significantly less than they paid. Many walked. Developers, stuck with financing requirements they couldn't meet, started cancelling projects — over 11,000 units in the greater Toronto-Hamilton area alone since the start of 2024, according to Coffin.

The developers aren't exactly sympathetic characters in this story, but they're also caught: buyers bailing, banks tightening, construction costs still rising.

The Government's Awkward Position

So the government steps in. BC announced it would acquire thousands of unsold vacant condo units from developers, converting them into affordable or rent-to-own housing. Ontario announced a similar program and offered a substantial HST rebate on new home construction. The Carney government committed billions more toward affordable housing and new rental construction in Toronto.

Critics called the condo purchases a developer bailout. That framing has some merit. But Coffin lays out the actual logic: despite the price decline, Canada still has one of the lowest housing stocks per capita among advanced economies. The Canada Housing Corporation has estimated that annual housing starts need to roughly double — to somewhere in the range of 430,000 to 480,000 units per year through 2035 — to address the shortage. The tax rebate prompted people to camp overnight outside Ottawa developments, which suggests the demand problem isn't a lack of desire to own housing — it's a lack of affordable options.

The conflict of interest is baked into the situation. Over 40% of Canadian household wealth is tied to real estate. A sustained price collapse doesn't just hurt speculators — it devastates the balance sheets of ordinary homeowners who stretched to buy in an expensive market. The government can't simply let prices correct to affordability without inflicting enormous collateral damage on people who have nothing to do with the speculation that drove prices up.

And there's a timing problem that makes the current policy scramble more urgent than it might appear. Condo starts in Toronto and Vancouver have fallen dramatically since late 2023. With no new project launches in Toronto in the first quarter of 2026 — the first time that's happened in three decades, Coffin reports — the pipeline is draining. Condo completions in four to five years could drop sharply, potentially at exactly the moment when population decline stabilizes, interest rates come down, and demand returns. The government is essentially trying to keep the production infrastructure alive through a demand trough it helped create.

The Structural Question Underneath All of This

Coffin points to an observation that the current crisis might be forcing into view: Canada's investor-led pre-construction model is somewhat unusual. In the United States, condo pre-sales go predominantly to primary residents. The investor-as-intermediary system that evolved in Canadian cities was a market solution to a financing problem — but it produced buildings nobody actually wanted to live in, then became the load-bearing wall for an entire development industry.

Developer Sappor has argued that larger units are actually cheaper to build per unit once you account for shared infrastructure costs. If that's true, the efficiency argument for tiny investor-optimized units was always somewhat illusory — a function of what the market rewarded rather than what made structural sense.

The path most observers seem to converge on involves reorienting condo development toward residents: changing financing requirements so developers don't need 70% investor pre-sales, building units people can actually live in, and accepting that the speculative layer that inflated this market isn't coming back.

Whether a development industry that spent years building for investors can retool quickly enough — and whether government intervention can bridge the gap without simply propping up the conditions that created the mess — is the question Canada's housing market is currently trying to answer in real time, with real people's savings on the line.

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Dorothy "Dot" Williams covers small business and local entrepreneurship for Buzzrag.