‘In some respects I think it’s worse’: Condo crisis draws parallels to 1990s meltdown

The chaos sweeping through Toronto’s preconstruction condo market is showing no sign of easing in 2026, and for some observers it’s starting to look uncomfortably familiar.

Anyone who’s even remotely been paying attention to the housing market knows what’s been happening: buyers who signed preconstruction deals at the peak of the market in the late 2010s and early 2020s are now arriving at closing to discover that their units are appraising far below the purchase price.

That gap is leaving many unable to close, even if it means surrendering deposits and exposing themselves to legal action from developers.

Most observers don’t see the crisis becoming as severe as the catastrophe that befell Toronto’s condo market three decades ago, when an overbuilding boom collided with high interest rates and a deep recession.

But there are still echoes in the current market of that fiasco, according to Leor Margulies, partner and head of commercial real estate at Robins Appleby LLP.

Having witnessed both downturns, and represented developers in each, he sees challenges in the current market that weren’t necessarily present during the last crash.

‘This market, to me, is more problematic than the last one’

“Back in the 1990s, what triggered it was very lax lending criteria,” he told Canadian Mortgage Professional. “You had probably four times as many institutions. Interest rates were staggeringly high. And the speculation in the late 1980s was much higher on land and condos. It took four or five years to get out of it.”

The fallout from that downturn was brutal. Many fringe developers and aggressive lenders were forced to the sidelines, with projects stalling and confidence in the condo market taking years to rebuild. But Margulies said there was at least a path to resolution: namely, tightening lending, taming inflation, and bringing interest rates back down.

That’s not necessarily the case this time around. “This market, to me, is more problematic than the last one,” he said. “It was horrible, the last one. It shook out a lot of lenders and fringe developers, as this one will. But the causes were easy to correct.

“This one’s different. We have low inflation. We have lower interest rates. We have excellent lending and very stringent lending criteria. But we still have the intrinsic issue of cost. We have people that want to buy – but the cost to build it can’t match it.”

That suggests a structural mismatch in the present market that wasn’t apparent to the same extent in the 1990s, according to Margulies. Those construction and other costs have soared, taxes and fees remain elevated, and market pricing is under mounting pressure.

“That’s different from 1990,” he said. “High-rise units are being sold at sub-$1,000 [per square foot]. Even if you put land at zero in your budget, you still need to get $1,200 a foot based on all the taxes and the cost of labour and materials.”

If the numbers don’t work, that usually means projects stall, land values reprice, and financing pipelines clog up even as population growth and housing demand remain strong.

‘You’ve got to do something with government costs’

Homebuilders say efforts to ease construction costs need to be front and centre for federal and provincial authorities if the market is to see a meaningful long-term recovery.

But finding answers could prove easier said than done. “You’ve got to do something with the government costs,” Margulies said. “In Toronto we can pay around a 4% transfer tax. That’s huge.”

Recent moves like the temporary HST rebate on new purpose-built homes are a step in the right direction, he added – but not nearly enough. “It has to be permanent or much longer than a year,” he said. “But that’s all we could get out of the government.”