Regulatory Shifts Reshape Toronto’s Condo Market

February 2025 – Toronto: A wave of new regulations and tax policies is transforming the landscape of Toronto’s condominium market. From stricter municipal bylaws to revamped tax measures and climbing condo fees, current and prospective condo owners are navigating a markedly different environment than in years past. This analysis examines the latest changes – and their implications – in three key areas: municipal regulations, tax policies, and condo ownership costs. Clear patterns are emerging: policymakers are acting to curb speculation and boost affordability, while market forces are adjusting in real time.

Municipal Crackdown: Vacant Units, Short-Term Rentals & More

Vacant Home Tax Triples: Perhaps the most striking municipal move is Toronto’s decision to triple its Vacant Home Tax. Starting with the 2024 tax year, homes (including condos) deemed vacant are subject to a 3% tax on assessed value, up from 1% previously . City Council approved this hike in October 2024 to pressure owners of empty units – often investors or foreign owners – to either occupy or rent out their properties. Owners must now file an annual occupancy declaration or risk the property being deemed vacant by default (and taxed accordingly) . For a condo assessed at $800,000, an unjustified vacancy could incur a $24,000 levy – a steep incentive to keep units in use.

Short-Term Rental Restrictions: Toronto is also tightening the reins on short-term rentals (STRs) like Airbnb. In 2025, the city is finalizing the last phase of its STR bylaw, reinforcing rules that limit short-term rentals to an owner’s principal residence . This means condo owners can no longer buy units solely to operate as vacation rentals. Hosts must be registered, pay higher operator fees, and adhere to advertising restrictions, eliminating the once-lucrative strategy of running multiple STR condos. The goal is to “safeguard long-term rental availability” by preventing homes from being diverted to the tourist market . For investors who previously relied on nightly rental income, this regulation forces a pivot to long-term tenants or leaving the market.

New Protections for Renters: Another municipal initiative is the Rental Replacement and Renovation By-law, effective mid-2025, which targets so-called “renovictions.” Landlords (including condo investors) must now obtain a City-issued license before evicting tenants for major renovations and provide proof the work necessitates vacancy . They must also guarantee tenants the right to return or provide compensation. Non-compliance can trigger hefty fines. For condo owners renting out units, this adds a layer of scrutiny and could deter those who might have bought condos to flip them after evicting tenants for upgrades. The regulation underscores City Hall’s pro-tenant stance amid a housing affordability crisis.

Development and Zoning Changes: On the supply side, inclusionary zoning – a policy requiring new condo projects to include affordable units – was introduced by Toronto in late 2021. The city’s original plan would phase in requirements up to 8-22% of floor area as affordable housing (depending on location) over the coming years . However, a provincial intervention (Ontario’s Bill 23 in 2022) has capped these set-asides at 5% and limited affordability periods to 25 years, substantially diluting the city’s policy . Compare this to prior policy: Toronto envisioned affordability locked in for 99 years ; now provincial rules shorten that term and scale back the percentage. The result: developers face lower affordable unit mandates than initially expected, easing project costs but also reducing the long-term affordable housing stock created by new condos.

Higher Property Taxes: Toronto historically kept property tax increases modest, but 2024 and 2025 have marked a shift. The City’s 2025 budget proposes a 6.9% effective increase on residential property tax (including a special building fund levy) . For condo owners, this means a noticeable rise in annual tax bills – on top of the Vacant Home Tax if applicable. Notably, Toronto also introduced a new tax subclass to encourage purpose-built rentals, offering a 15% lower tax rate for 35 years on newly built rental apartment buildings . While this break doesn’t directly apply to individual condo units, it signals a policy preference for rental development as the city seeks to expand housing supply. Condo owners may feel they’re bearing more of the tax burden as the city balances its budget and housing goals.

Implications: These municipal measures collectively aim to curtail speculative ownership and increase housing availability. Current condo owners who leave units empty face steep costs, and those renting out must comply with stricter rules protecting tenants and the rental market. Prospective investors will find the condo market less friendly to pure speculation: buy-to-leave-vacant and Airbnb strategies are largely off the table. On the flip side, end-users (owners who actually occupy their condos) stand to benefit from more units being occupied and potentially less competition from speculative buyers, as well as a more tenant-friendly landscape if they are renting before buying.

Tax Policy Shifts: Cooling Investors and Foreign Buyers

The regulatory turn isn’t just local. Federal and provincial policies are also reshaping who can buy Toronto real estate and at what cost:

Foreign Buyer Ban Extended: In a bid to rein in housing prices, Canada introduced a foreign buyer ban in January 2023, originally a two-year measure. As of February 2025, that ban has been extended through January 1, 2027 . Non-resident, non-Canadian buyers are prohibited from purchasing condos (and other residential property) in Toronto and other major markets. Previously, Ontario levied a 15% Non-Resident Speculation Tax (later 25%) on foreign buyers, but foreign demand still grew throughout the 2010s. The current outright ban is a much stricter successor to those tax measures. The Wall Street Journal reports that policymakers hope this will prevent foreign capital from driving up prices, keeping homes “available to Canadians” . By removing a segment of demand, this policy has cooled a source of competition – an effect current buyers may welcome. However, some analysts question the ban’s impact. The Financial Times noted that governments see keeping foreign buyers out as a way to improve affordability, “a fair aim but a dreadful [approach]” if underlying supply issues aren’t solved . In practice, Toronto’s condo market was already heavily driven by domestic investors (an estimated 43% of Toronto condos were investor-owned as of 2022 ), so the foreign-buyer ban addresses only part of the investor demand pool.

Anti-Flipping and Assignment Taxes: Domestic investors face new tax rules as well. A federal anti-flipping tax now deems profits on properties held less than 12 months fully taxable as business income (with certain exceptions), effective 2023. This discourages quick flips of condos for profit. Ontario also already charges double land transfer tax in Toronto (both provincial and municipal) – adding tens of thousands in upfront cost for a typical condo purchase – and subjects most assignment sales (resale of pre-construction contracts) to HST. Compared to a few years ago, the tax friction on speculative transactions is significantly higher. For example, an investor who bought a pre-construction condo contract and now sells it prior to closing would pay HST on any uplift (per 2017 rules) and potentially face the new flipping tax if the hold was under a year. These changes make short-term speculation less lucrative, nudging the investor calculus toward longer-term holds or exiting the market.

Vacancy Taxes Multiply: Beyond Toronto’s 3% Vacant Unit Tax, the federal government has implemented an Underused Housing Tax (UHT) of 1% annually on vacant or underused homes owned by non-residents . A foreign owner of a Toronto condo that is left vacant now faces both the city and federal taxes – a combined 4% of the property value per year in charges, a prohibitive sum. (For instance, a condo appraised at $700,000 would incur $28,000 in vacancy taxes annually under both regimes.) Compared to the past, when no such annual taxes existed, the holding costs for speculative owners have skyrocketed. Current foreign owners are strongly incentivized to rent out or sell units, and prospective foreign buyers (were they not banned outright) would face these carrying costs as a deterrent. The early evidence: many investors have indeed pulled back. Multi-property owners scaled back purchases after 2022, according to Teranet data, and those who remain are renting out units to cover costs rather than leaving them empty .

Tax Incentives for Rental Supply: Not all policies are punitive – some aim to encourage construction and long-term rentals, which indirectly affect the condo market. In late 2023, the federal government removed GST (5% federal sales tax) on new purpose-built rental projects to spur development of apartments. Ontario aligned by rebating the provincial sales tax on rentals. While these measures target rental buildings (not condos for sale), they could shift some developer focus away from condo projects toward rentals. Already, industry data show at least 33 condo projects in the GTA were converted to rental or put on hold in 2024 amid soft pre-construction sales . For prospective condo buyers, this could mean fewer new condo launches but more rental options in the coming years. Additionally, if rental supply increases, condo investors who count on rising rents may see more moderate rent growth, reducing the appeal of buying condos solely to rent out.

Implications: Broadly, tax policy shifts are discouraging speculative and non-resident investment in Toronto condos. Current owners who are investors find themselves squeezed by higher taxes and stricter rules – many have “disappeared” from the market, as observed in recent sales data. The Canadian Mortgage and Housing Corporation (CMHC) projects that **record-high condo completions in 2025 coupled with waning investor appetite will soften demand and further “increase resale listings”, putting downward pressure on condo prices . For end-user buyers, this environment can be a boon: less competition from deep-pocketed investors and foreigners can translate into more negotiating power and potentially better prices. But it’s a double-edged sword – these same forces contributing to a cooler market (investor retreat, many new units) also raise concerns about price stability and the financial health of some developments.

Climbing Condo Fees Squeeze Owners’ Budgets

On top of regulatory changes, condo ownership costs themselves are rising. Toronto condo owners in 2025 are contending with surging maintenance fees, insurance premiums, and utility costs, which chip away at affordability.

Maintenance Fees on the Rise: According to condos.ca data, average condo maintenance fees across 12 Toronto neighbourhoods jumped 5.5% in 2023 , well above inflation in previous years. And experts warn this trend is not a one-off. “It’s reasonable to assume the same kind of rise into 2024,” says Andrew Harrild, co-founder of condos.ca, who attributes the spike largely to inflation and aging infrastructure costs . In practical terms, many Toronto condo dwellers are now paying hundreds more per year in fees for the same unit. Anecdotally, some luxury condos and larger units incur maintenance fees exceeding $1,000 per month, on top of mortgage payments and taxes . Even more modest units have seen fees climb – e.g. a downtown one-bedroom’s fee that was $500/month a couple years ago might be closer to $550-$600 now. There’s no regulatory cap on these increases (Ontario law does not limit how much a condo board can raise fees year to year ), so boards adjust fees to meet rising expenses for utilities, cleaning, security, and reserve fund contributions. Compared to prior years of 1-3% typical increases, owners are now seeing 5-10% annual jumps, significantly affecting carrying costs .

Special Assessments and Aging Buildings: Some condo owners face even sharper costs when buildings run into unexpected expenses. A recent high-profile case in North York saw condo fees spike 113% in one year due to a mix of poor reserve planning and urgent repair needs . While such extreme cases are rare, they underscore a risk for current owners – especially in older condos – of special assessments or drastic fee hikes if major capital repairs (roof, elevators, structural issues) arise. New regulations haven’t yet directly addressed reserve fund adequacy, but owners would be wise to vet a building’s financial health before purchasing. Industry observers note that the 2021 condo collapse in Florida prompted some Canadian condo boards to re-examine building safety and reserves, which in some instances led to higher contributions (and thus fees) to shore up reserve funds. All told, the cost of upkeep is trending up, adding another consideration for buyers and a pressure point for owners on fixed incomes.

Rising Mortgage and Tax Payments: Condo fees aren’t the only costs climbing. Mortgage rates remain near decade highs after aggressive Bank of Canada rate hikes. Many condo owners who bought or refinanced at ultra-low rates in 2020-2021 are hitting renewal time with 30-40% higher monthly payments expected upon renewal . The Wall Street Journal reported that Canadian homeowners will renew roughly C$675 billion in mortgages in 2024-25, with payments set to rise by one-third or more, diverting about C$15 billion annually from households to debt service . For condo owners, who often have large mortgages relative to income, this can be a serious strain. Robert Hogue, RBC Economics’ chief economist, cautions that even as interest rates are forecast to ease slightly, many borrowers face a “payment shock” at renewal, which “could force some owners to sell, adding to inventory” . Add to this Toronto’s above-noted property tax hikes and any increase in insurance premiums (which have been rising nationwide due to inflation and higher rebuilding costs), and it’s clear the monthly cost of condo ownership has escalated.

Implications: For current owners, higher condo fees and carrying costs erode profitability and affordability. Investor-landlords see thinner margins (rent increases are capped by provincial guideline for older units, and even newer units in Toronto’s softening rental market can’t always justify steep rent hikes). Some may decide it’s “not financially comfortable” to carry an over-leveraged condo at these costs – mirroring the story of one Toronto investor, Joe Baradziej, who walked away from a pre-construction purchase because the numbers no longer made sense . “It comes down to simple math… by me walking away, I am saving money,” said Baradziej, who chose to forfeit a $439,000 deposit rather than close on a condo now appraised 27% below what he agreed to pay . His case is extreme, but instructive: when carrying costs overshoot returns or value, investors will cut losses. Prospective end-user buyers, meanwhile, must budget carefully. Lenders consider condo fees when calculating mortgage affordability; rising fees effectively reduce how much mortgage a buyer can carry for a given income. First-time buyers, already stretched by high interest rates, might find that after accounting for $600+ in monthly fees and property taxes, the condo they could afford is smaller or farther out than anticipated. Real estate brokers are now advising clients to scrutinize condo financial statements and choose buildings with reasonable, sustainable fees. In a slower market, buyers can also negotiate for deals – for instance, some developers are offering two years of prepaid maintenance fees on new units to attract sales, an incentive rarely seen in the frenetic pre-2022 market.

Outlook: Cautious Optimism or Continued Headwinds?

Toronto’s condo market in 2025 is at an inflection point. The flurry of regulatory changes – vacancy taxes, rental rules, foreign buyer restrictions, and others – marks a clear policy shift toward prioritizing end-users and renters over pure investors. In the short term, these shifts, combined with high financing costs, have cooled the once-hot condo sector. New condo sales in 2024 fell to their lowest level since 1996 , and resale condo prices have stagnated or slid in many pockets. RBC Economics describes Toronto’s condo segment as “embattled,” facing near-term “price softness” due to the surge in new supply and waning investor demand . In fact, RBC forecasts that **Toronto area condo prices could “lose further value” going into 2025 amid growing inventory . For current owners, especially recent buyers, this could mean little to no appreciation (or even a dip) in condo values for the next year or two – a stark contrast to the rapid gains of the 2015–2021 period. Some owners are already underwater on paper, as seen in appraisal shortfalls for newly completed units .

However, there are glimmers on the horizon. CMHC and major banks predict that interest rates may start to inch down by late 2025, which would relieve some financial pressure . Lower rates could “unlock demand from buyers who had been sidelined” – notably the many millennials and newcomers waiting for a foothold in the market. Additionally, the very measures cooling the market now may set the stage for more stability later. With investors less dominant, the condo market might see more sustainable price growth aligned with local end-user demand. If the city’s efforts succeed, more rentals and previously vacant units will come onto the market, easing the rental crunch and offering buyers more choices. By 2026-2027, the massive wave of condo completions will have been absorbed; developers (those who weather the storm) will likely have adjusted to the new normal of doing business with inclusionary zoning (albeit limited) and less pre-sale investor capital. In essence, a healthier balance could emerge.

Actionable Insights: For current condo owners, especially investors, it’s time to stress-test your portfolio. Factor in higher expenses at mortgage renewal, budget for condo fee increases, and ensure units are tenanted to avoid punitive vacancy taxes. It may be prudent to hold through this softer market rather than sell at a low point – unless holding costs become untenable, in which case selling and cutting losses early might be wiser (as painful as that is). Owners planning to renovate tenant-occupied units should get acquainted with the new renovation license requirements to stay compliant.

For prospective buyers, the regulatory shifts present opportunities and cautions. Opportunity: less frenzy and more room to negotiate, both on price and contract terms (e.g. asking for closing cost credits or a couple months of fees paid by the seller). Caution: perform due diligence on the condo building’s financials and governance – look for a solid reserve fund, no large looming special assessments, and a track record of reasonable fee increases. A “cheap” condo with unusually low fees can be a red flag if it means the board isn’t budgeting for necessary upkeep (today’s savings could mean tomorrow’s 113% hike or special assessment). Also, be mindful of unit size and layout; micro-units that were favorites of investors (the “shoebox” condos) may see weaker resale demand now that end-users are the primary buyers. Larger or unique condos that appeal to actual residents could hold value better.

Finally, both current and future owners should recognize that policy risk is now a feature of the market. Governments at all levels are actively intervening in housing. Staying informed on regulatory changes – whether it’s a new tax class, a change to rent control rules, or updated building codes – is becoming as important as tracking interest rates. In Toronto’s condo market, the rules of the game are changing, and those who adapt will be best positioned to thrive in this new era of accountability and balance in housing.

Sources:

• Government of Canada, Department of Finance – News release on foreign buyer ban extension

• Wall Street Journal – Housing market impacts of rate hikes and investor pullback

• The Globe and Mail (via MPA) – Case of Toronto condo buyer forfeiting deposit

• Canadian Mortgage Trends – CMHC 2025 Outlook (condo completions and investor impact)

• Real Estate Magazine (REM) – RBC Economics commentary on Toronto condo market softness

• City of Toronto – 2025 Budget Tax changes and Vacant Home Tax details

• Condos.ca data – Analysis of 2023 maintenance fee increases (5.5% rise)

• Financial Times – Commentary on foreign buyer bans and affordability

• City of Toronto – Short-Term Rental and Renters’ protection bylaws

• Canadian Housing Statistics Program – Investor-owned housing data (Toronto 43%)