The rapidly changing skyline of Waterloo Region is a theme I’ve visited many times before. The condo building boom of the previous several years has been one of the most outwardly obvious signs of our area’s growing demographics and economy, and of our local governments’ focus on intensifying urbanization rather than expanding outwards.
It might surprise you (or perhaps not!) to learn that the total value of building permits issued over the past four years (2018 through 2021) within the cities of Kitchener and Waterloo alone worked out to a combined $5.489 billion dollars. Yes, that’s billion with a ‘B’. And a very significant proportion of that figure was contributed by the multi-storey condo towers that we can now see dotted throughout the twin cities. But, as has been very recently outlined by an article featured prominently in the Waterloo Region Record, the momentum behind this condo construction craze has come to a practical halt over the past few summertime months.
This shift in the market is in evidence across most aspects of real estate related businesses – the rental market being a notable exception, but that’s another story altogether – and the main reason behind this decrease in buyer activity is one you’ll be familiar with. Rising interest rates strike again! Canada’s prime rate of 3.25% is already sitting at a near-15 year high, while south of the border the US Federal Reserve only yesterday boosted its own rate by another 75 basis points in a move which nearly certainly presages another rise in our own rate when the Bank of Canada announces its next move on October 26th.
Because investors make up such an important part of today’s condo market and are a key target of for unit sales, these climbing interest rates have made the cost of purchasing new units unsound from a business standpoint for many heretofore active buyers. Therefore, as sales have ground to a halt, developers have been forced to put a pause on new projects. Projects already in progress will of course be completed, but you can expect to see vacant construction sites become a more regular sight in and around Kitchener-Waterloo.
Yet another factor weighing heavily on new development starts is the ever-higher cost of raw and processed building materials. Not only has post-Covid inflation had a significant impact on the cost of goods in and of itself – but stress on supply chains has been exacerbated by the large-scale purchasing of entire supply chains by multi-national corporations over the past two years. And with the cost of building materials going up in tandem with interest rates, new projects just aren’t able to recover a developer’s initial expenses as they were prior to 2021.
Now, if you’re an owner of a newer unit in our area, there is a silver lining to all of this recent rather depressing financial news. Demand for housing in our area remains at historic highs. And with an interest rate induced slowdown in the construction of new units, the same old laws of supply and demand will kick in, ensuring that the value of condo units in our area is not undercut by hoards of new developments coming online to satisfy buyer demand. And as traditional detached homes continue to lie beyond the realm of affordability for many buyers (especially younger buyers), people are bound to turn to alternative and relatively cheaper styles of housing. A young professional workforce in Kitchener-Waterloo also continues to guarantee an active market for condo resale.
