Rising development costs and high-profile project cancellations have injected a note of caution into Toronto’s hot condo market, with more project terminations likely to come, says development research company Urbanation.

It found Toronto condo launch prices were up 23 per cent year over year at the end of the first quarter, but also an extraordinary number of projects that launched a year ago — 53 developments with nearly 14,000 units — still hadn’t begun construction.

It’s not unusual for a project to take more than a year to go from pre-sale launch to building. But about a third of those units — about 4,000 — are in developments that are still seeking approvals.

“Our belief is that most will still proceed… but a portion are at risk,” said Shaun Hildebrand, Urbanation senior vice-president.

Cancellations such as Liberty Development’s 1,153 Cosmos condos in Vaughan last month and last year’s Castlepoint Numa 168-unit Museum Flts last fall, “remain isolated instances,” he said.

“I don’t think there’s any question the industry’s reputation is likely to take at least a minor hit this year,” he said. “That’s going to occur as I believe more projects will announce cancellation.”

But he added, “this still represents a fairly minor share of overall development.

“The record number of units now under construction (61,337 at the end of the first quarter of 2018) should add confidence to the market that projects are proceeding.”

With condo construction at a 25-year high — 70,000 apartments in the Toronto region if you include purpose-built rentals — construction prices are rising and there is a logjam of projects in the approval pipeline. Even projects that are 86-per-cent sold out and have secured construction financing will have a hard time getting a construction contract without the approvals to build, said Hildebrand.

The number of new condo sales returned to a more normal level in the first quarter — down to 4,219 units compared to 9,744 in the first quarter of 2017. The number of projects launched also fell by 38 per cent compared to last year, in part because some developers moved up their timelines.

Prices have also declined recently to $843 per sq. ft. in this year’s first quarter, from $893 per sq. ft. in the fourth quarter of last year.

This year, the new-construction and re-sale condo markets have aligned, says Tuesday’s Urbanation report.

Re-sale condo sales declined 31 per cent compared to the extraordinary 2017 levels to 4,297 apartments — as high prices and new mortgage stress tests discouraged some buyers. Re-sale unit prices have remained steady, however, growing 2 per cent compared to the last quarter of 2017 and up 11 per cent to an average of $661 per sq. ft. year over year.

Unsold new construction condo inventory, nevertheless, remains at a 16-year low with fewer than 8,000 units available, pushing up prices 30 per cent to $914 per sq. ft. over last year’s first quarter.

The supply shortage is most pronounced in the smallest condos with studios showing the fastest price appreciation of 24 per cent year over year in the first quarter of 2018. One-bedroom condo prices also showed above-average growth, said Urbanation.

That reflects the concentration of development in densely populated, more expensive downtown areas where builders have actually been allocating more space to larger apartments to feed demand from move-up buyers and downsizers.

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“Ironically, it was always the fear over the last decade that we were not only building too many condo units, but we were building too many small units. Now what we’ve come to realize is that’s not been the case and we’ve actually not been building enough small units,” said Hildebrand.

Smaller condos have been Toronto’s answer to its affordable housing challenges and, unfortunately, it’s these units that are now rising in price, he said.