Toronto housing developers could cancelthe construction of up to 5,000 condo units as the costs of borrowing and building soar, according to an analysis by leading condo research group Urbanation Inc.

Construction costs have climbed across the country. Putting up a high-rise in Toronto is now 21 per cent more expensive than it was during the same quarter of last year, according to Statistics Canada’s building construction price index. And with the Bank of Canada’s benchmark interest rate having risen 125 basis points in the past four months, construction loans are also becoming more expensive.

Such an increase in costs can put a developer in a bind, because projects typically can’t receive construction loans until most of their units have already sold to preconstruction buyers. The time between preconstruction and occupancy is usually about five years. If costs rise during that interval, a developer can’t easily raise prices to compensate, because many of its condos are presold. Instead, the increased expenses eat away at profit margins. When projects become unprofitable, they are often cancelled.

According to Urbanation’s research, about 5,000 preconstruction units were sold last year for less than $1,000 per square foot, which would make them economically unfeasible to build under current financial conditions. “Many of those could cancel,” said Urbanation’s president, Shaun Hildebrand.

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