In Canada, apartment construction — primarily driven by institutional investors financing entire buildings — reached its peak last year. Over the past few years, these large-scale projects have eclipsed condo developments as the dominant form of multifamily construction in a country urgently needing more housing.
Historically, individual investors played a pivotal role in financing condo towers. These “mom-and-pop” investors would buy properties before construction, intending to rent them out once completed. However, the rise in borrowing costs, stagnating rents, and decreasing property prices have pushed many of these investors out. This shift now presents an opening for pension funds and affluent families, who have largely avoided Canada’s housing market until now.
Last year, Blackstone Inc. made headlines as one of the largest apartment developers in Canada after acquiring Toronto-based Tricon Residential. Large pension funds are also getting involved, repurposing existing properties like malls into new residential developments. British Columbia’s public-sector pension fund, for instance, is transforming Toronto’s Cloverdale Mall into a new neighbourhood, while smaller funds are financing numerous individual buildings across the country.
This marks a significant shift in Canada’s housing market. Industry experts like Mazyar Mortazavi, CEO of TAS in Toronto, acknowledge that individual investors are no longer driving condo development, leaving room for institutional capital to fill the gap. Mortazavi states, “I don’t think the condo market is going to come back in the way it was. That opportunity is going to be picked up by institutional capital.”
Developer Carlo Timpano, president of Capital Developments, highlights how rental buildings are now a more favourable option than condos due to the financial unpredictability of the condo market. "When you run the math on holding a property for a recovery in the condo market versus building it as a rental, the math simply looks better as rental," Timpano explained. His firm is now exploring new capital partners to expand its rental building portfolio.
The exodus of individual condo investors began with rising interest rates in 2022. As borrowing became more expensive, rent growth couldn’t keep pace, turning many investor-owned condos into financial liabilities. Even with a slight drop in interest rates last year, it wasn’t enough to reverse the damage. The oversupply of condos in the market also drove down resale values for existing owners, further stalling new condo sales.
As a result, the demand for new condos has collapsed, and developers, who once relied on individual investors for initial financing, are now scaling back their projects. This slowdown in construction threatens to exacerbate Canada’s already severe housing affordability crisis. With cities like Toronto ranking among the least affordable in the world, the issue remains a top priority for lawmakers.
While the condo market works through its supply glut, the reduction in new condo construction could actually benefit developers of rental properties. In four to five years, when these rental projects are completed, there may be fewer competing units, creating a strong opportunity for those entering the rental space now.
Developer Carlo Timpano notes, “There will be a dearth of supply in four to five years into which we’ll be delivering our product.” In the meantime, apartment developers are moving forward with new projects to compensate for the slowdown in condo development. Last year, national housing starts increased by 2%, reaching over 245,000 units, primarily driven by rental construction.
Despite this increase, Canada is still grappling with a severe housing shortage. The CMHC forecasts that new housing starts will likely dip below 2024 levels in the coming years. “We’re nowhere near what we need to be producing to make our way to an affordable market,” said Tania Bourassa-Ochoa, deputy chief economist at CMHC. “We should not only be maintaining the rental construction we’re seeing right now, but accelerating that.”
For investors, this landscape presents a chance to capitalize on a shift toward rental properties while supporting Canada’s housing needs in the long term. The demand for new apartment and rental buildings has never been greater, and with the right investment strategy, now is the time for well-capitalized investors to step in.