A weak diversity of housing choice, marked by the steady stream of ever-shrinking condo units, is one of three structural challenges facing the GTA housing market, according to a special TD Economics report. Alongside decreasing selection are the challenges of deteriorating affordability and a strained transportation system.

Released Jan. 19, the special report calls for a regional policy response to these growing challenges, which it says have been obscured by the housing market’s enduring boom over the last 10-plus years.

In the late 1990s, condos represented more than 40 per cent of all new homes built, according to the report. Now, 10 years after Ontario’s Greenbelt Plan and Places to Grow Act were introduced, condos represent 80 per cent of all new homes under construction.

The report says this focus on small multi-residential units has widened the gulf between the price of condos and the prices of townhouses and single-detached homes, with the latter group fetching a premium. Though condos have provided some first-time buyers with an affordable entry point into homeownership, the report suggests these buyers will have a harder time moving up in the market.

The report cites a 2011 City of Toronto survey that found half of all responding households intended to uproot in search of more affordable, larger, family-friendly housing in the following five years. Since 2011, approximately 60 per cent of all condo units built have been one-bedroom units. What’s more, the two-bedroom units that do get built have shrunk to the same size that one-bedroom units used to be.

“While increased densification has been a laudable goal of the provincial and municipal governments in recent years, it can reasonably be argued that the pendulum has swung too far in favour of units that are typically tailored for shorter-term living,” the report says. “It raises the question of how the GTA will accommodate the future changing housing needs of both the echo generation who will begin families as well as seniors.”

The report forecasts that, following a shift to increasing homeownership, renting will regain some ground. But the economics of building condos have also contributed to the continuing decline of the region’s purpose-built rental stock. And the investor-owned condo units expected to fill the gap are, at an average rent of $1,700 per month, out of reach for low-income residents, says the report.

With most forecasting a moderate cool down in home prices, the report anticipates that any correction will largely be contained within the condo sector. Assuming the recent pace of construction, the report says that of the 60,000 units expected to hit the market in the next few years, it is estimated that 25,000 units represent oversupply.

“The impact of increased supply of condo rental units is expected to only partially offset by rising rental demand,” says the report. “In this environment, the cost of condos will likely exceed what an investor can earn on the rent.”

Among other measures, the report recommends better tying building permit approvals to demographic need, eliminating “unnecessary” development costs, such as pricey parking requirements in Toronto, where many residents can and do walk or take transit to work, and using tax incentives to discourage property owners from letting land sit idle as its price appreciates.

“Housing policies that bring down the cost of construction, speed up delivery and improve the economics of investing in a broader array of housing types — including rehabilitation — would translate into lower costs for residents over the long run,” says the report.

Michelle Ervin is the editor of CondoBusiness magazine.