Toronto condo-apartment construction starts are likely to decline in the future after being elevated by unit presales in 2023, says a new Canada Mortgage and Housing Corporation report.

Strong presales in late 2021 and early 2022 led to a record 14,813 Toronto metropolitan area condominium-apartment construction starts in the first half of 2023. That rise spelled a 24% increase from 11,992 units in the first half of 2022.

Most of the first-half 2023 projects were launched within Toronto’s city limits. Between January and June 2023, condo-apartment starts outpaced completions by 5,170 units, adding to skilled-labour capacity constraints.

But while starts were soaring, presales nosedived. Higher mortgage rates resulted in a 52% drop in condo-apartment presales in the first half of 2023 compared to the same period in 2022, said CMHC while citing Altus Group data.

“This has made it more difficult for developers to achieve the [presales] necessary to access construction financing,” said CMHC.

Meanwhile, rising interest rates have led to higher debt-service costs for new projects. The high number of housing starts in Toronto proper has placed continued upward pressure on construction costs, specifically materials, labour and equipment. Such expenses rose 13% year-over-year in the second quarter of 2023.

“The above factors likely indicate fewer starts in the Toronto {metropolitan area] in the future, since condominium apartments are the most-built housing type in the region,” said CMHC.

A decline spells housing supply and affordability problems amid strong population growth and fewer rental homes, added CMHC.

Investor-owned condos remain a significant source of Toronto rental supply.

The CMHC report shows that a surge in apartment projects, particularly in Toronto, Vancouver and Calgary, prevented a decline in Canadian new-home construction in 2023.

But Aled ab Iorwerth, the CMHC’s deputy chief economist, has warned that the large amount of construction starts will not improve housing affordability.

And, apartment developers could struggle to match the national new-supply level in 2024.

The CMHC report covers Canada’s six largest cities, including suburbs.