Untenable pro formas, skittish lenders and reluctant buyers are intertwined features of a condominium market collapse destined to further complicate Canada’s already perilous affordable housing shortage. As the shortfall to a targeted 4.8 million new dwelling units by 2035 grows wider, the bad news is, the delivery pipeline is more sluggish than it may appear.

Canada Mortgage and Housing Corporation (CMHC) tallies housing starts at the point that a construction project emerges above grade. A wide range of necessary advance inputs into future housing supply — development approvals, unit pre-sales for condo projects and financing — aren’t captured, but, recently, a lot of projects have dropped out of the pre-construction queue.

“The housing starts that you’re seeing reported reflect decisions that were made in 2024,” Benjamin Tal, deputy chief economist with CIBC Capital Markets, advised while speaking at the Real Capital conference in Toronto earlier this week. “What’s happening right now is zip. Nobody’s building anything, but you don’t see it in the headline numbers.”

“Unfortunately, condominium starts are going to be particularly weak here in Toronto where pre-construction sales fell to multi-decade lows in 2025. We’re seeing projects delayed and we’re seeing them cancelled as financing thresholds are just harder to meet,” concurred Jessica Harland, a senior vice president with CBRE Capital, who, along with her colleague, Joshua Sonshine, presented newly released findings from her firm’s annual survey of lenders’ views on opportunities in commercial real estate.

Responses from 47 financial entities that collectively hold more than $200 billion worth of Canadian commercial real estate loans are generally upbeat for 2026. Survey participants confirmed plans to increase their loan books relative to 2025 for almost every asset class except high-rise condo construction and development land.

For those two asset classes, it’s the third consecutive year a reduction in available capital is envisioned. As well, 89 per cent of surveyed lenders now deem that development land poses an elevated or significantly elevated credit risk on refinancing — up from about 68 per cent who expressed that opinion last year.

Margins have been squeezed particularly tight for developers who acquired land at peak prices in 2020-21 then encountered rising interest rates and climbing construction costs soon after. Meanwhile, federal legislation has been in effect since Jan. 1, 2023, placing a four-year moratorium on non-Canadians buying residential real estate (with some exceptions).

“Those purchase prices haunt pro formas to this day,” Sonshine submitted. “Once interest rates and construction costs are inclining, the models for condo sales, construction and the related financing were essentially broken. Not to mention that we have a lack of foreign investors in the condo space and student immigration is falling.”

While there’s little momentum for project launches right now, there is building consensus that market recovery will require a reapportionment of costs and risk, and greater diversification of product. Tal hypothesizes that senior levels of government are getting ready to offset many of the costs that development charges cover. He also projects that a current Canada-wide glut of nearly 19,000 recently completed, unsold condo units — of which, roughly 9,000 are located in Vancouver and Toronto — should be absorbed over the course of the next two years.

“Prices are still too high to buy, but too low to build. The market is broken, and without reducing significantly the cost of delivery of new housing, we’re not going to move in the right direction,” Tal asserted.

In the existing condo stock, crash-triggered price drops will open up ownership possibilities to more buyers, including one of the fastest growing segments of the recent housing market — households that have doubled up. “With prices going down, some of them will be decoupling and that will be another source of demand,” Tal said.

For the future, pro formas free from development charges would give builders more room to manoeuvre and lenders more confidence that they could do so. Developers will also have to offer prospective buyers a product that they want to buy, which Tal characterizes as family-sized units that can be delivered on a timely schedule.

“If you’re a family, you need larger units and you cannot wait five years from pre-sale, he said. “This business of 80 per cent pre-sale will not be the future, I believe. We’re going to see a situation where developers will need to put more equity in the project. Banks will have to take more market risk and spreads will be different. That will be a new emerging condo market.”

As for the likelihood of lenders coming on board, Harland highlighted the quick turnaround in the office sector’s prospects. In the 2024 edition of the survey, zero lenders reported that they intended to increase loan allocations for office, while, two years later, 45 per cent of respondents are planning to expand loan books for office relative to last year. Lenders’ assessment of all categories of office except suburban Class B has grown rosier, with downtown Class A office properties boasting the most improved profile among the 22 categories of assets the survey monitors.

“In 2025, lenders proved that they would be there for strong projects, and, in my experience, that even applied to condo project financing if the project made sense and it was in the right market,” Harland reported. “The office sector was in the same place (as condo construction and development land) two years ago, and look how sharp a turnaround is possible with lenders’ intentions. All is not lost, but we certainly aren’t going to see a shift in 2026.”

However, Tal foresees an ultimate transformation.

“The condo market is going to change dramatically in a very significant way. You can not go through this kind of shock without change,” he maintained.