It’s the giant unknown that is under a spotlight, yet again, in the wake of the Bank of Canada warning Thursday that Toronto’s highrise condo market is not only overbuilt and overpriced, but a risk to the country’s economic health.

No one really knows how many of the 55,342 condos now under construction across the GTA are owned by investors — or what they will do if Canada is hit by economic shock waves from other parts of the world that could send house prices tumbling and, with them, consumer confidence and spending.

The next 30 months will be key, the central bank makes clear in its latest assessment of Canada’s financial system, which singles out the growing inventory of unsold units in Toronto’s condo market and raises concerns that construction has been boosted by investor, rather than demographic, demand.

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If that unsold inventory isn’t absorbed as projects come on stream over the next year to 30 months, prices could plunge and spread to the rest of the housing market, the central bank warns. “Such a correction would reduce household net worth, confidence and consumption spending, with negative spillovers to income and employment.”

The central bank’s warning comes a week after the OECD singled out Canada as one of just three countries with overvalued housing markets and as developers continue to put the brakes on new projects: Just nine developments with 2,604 suites launched in Q1 of this year, compared to 24 buildings with 6,141 units a year earlier, according to condo research firm Urbanation.

“The market is vulnerable for both external and internal reasons,” says Capital Economics housing analyst David Madani. “Obviously there is the risk of a shock to the Canadian economy from the United States and Europe or perhaps China slowing down and knocking down commodity prices.

“But I think what is not fully appreciated is the role of the investor and that the housing market itself could end up being the shock on the economy. When you have a flood of investors, they can easily swamp or overwhelm the market.”

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In addition to those 55,342 units now under construction across the GTA, another 30,000 condos are in the pre-construction phase and some 18,000 of all those units remain unsold, a number which has been climbing, according to Urbanation.

Urbanation estimates that some 50 to 60 per cent of all the units now being built are owned by investors. But few have opted to sell, and most are still making money by renting out their units with vacancy rates in the core at a 20-year-low of just one per cent and condo rents at record averages of almost $1,900 per month, said Urbanation vice president Shaun Hildebrand.

The bigger concern is all the condos to come, and the further pressure they could put on prices and supply, says Canadian housing analyst Ben Rabidoux.

Immigration rates are slowing, he notes. And condo prices are now so high, once interest rates start to rise, it’s going to become increasingly difficult for investors to cover their costs through rents.

“This isn’t a big deal if the condo market is rising, but if it’s softening, investors are bound to get antsy,” said Rabidoux, noting there are many examples of purchasers in Vancouver who’ve tried to get out of deals penned in the preconstruction phase years ago, before condo prices there started slumping.

What the Bank of Canada hasn’t accounted for is the “underlying dynamics of the marketplace,” says Jasmine Cracknell, a partner with Toronto-based development consultants N. Barry Lyon Ltd.

Almost 13,000 of those 18,000 unsold condos are in buildings where construction hasn’t even started, and some may end up being cancelled if the market doesn’t pick up, she noted. If anything, the downturn in the market has resulted in more competitive pricing and focused developers on Triple A locations where demand remains strong.

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“At least 50 per cent of the market right now is being driven by investors, but they are looking at these units as long-term rentals. Until we see vacancy rates of three or four per cent, more than double what they are now, then there would be the need for caution bells,” says Cracknell.

“But these investors are still getting returns on what are solid investments.”