The Bank of Canada published something weird last month. They basically described a Ponzi scheme without calling it one.

Their latest report walks through exactly how Toronto's condo market functions. Not how housing should work, but how speculation dressed up as housing actually operates. Then they blamed immigration and interest rates for why it's falling apart.

That's not what's happening.

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1,599 Units

That's how many new condos Toronto developers sold in 2025. To understand how bad that is: it's the worst year since 1991, which kicked off Canada's biggest real estate crash. The kind people still reference thirty years later.

And it's not like there's nothing to buy. Developers are sitting on 3,975 completed, unsold condos as of December. Up 56.8% from last year. These aren't half-built shells. They're finished. Keys in hand. Nobody wants them.

Finished homes sitting empty while the country supposedly can't build enough housing. Make it make sense.

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The Bank of Canada's Accidental Confession

Here's what the Bank said: Toronto's boom came from "strong population growth, low interest rates and robust investor demand."

That last one. That's the whole game.

The report explains that banks require 70% of units presold before they'll finance construction. So builders target investors who can put down 20% and flip before closing. No mortgage needed. Just leverage and a prayer that prices keep climbing.

Then the Bank drops this: condos are "no longer providing substantial returns for short-term investors."

Not "no longer meeting housing needs." Not "no longer serving residents." No longer profitable for investors.

And because of that, it's "challenging the business model of condo builders."

Read that sentence again. The business model of building homes in Toronto depends on investor profits. When those profits disappeared, so did the ability to build.

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What That Actually Means

Economist Hyman Minsky defined something called Ponzi finance decades ago. It's when an investment requires new money to validate existing debt, instead of generating returns from the asset itself.

His exact words: "Ponzi Finance units must borrow or sell assets to pay interest, relying on the expectation that the appreciation of asset prices will exceed the interest rate."

Sound familiar?

The Bank of Canada just admitted that Toronto's housing market runs on speculation, not shelter. They described the mechanics. They acknowledged the dependencies. They just avoided the Ponzi word.

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The Data Doesn't Match The Story

The Bank wants you to believe immigration and interest rates killed the market. Less people coming in, higher borrowing costs, less demand. Simple supply and demand, right?

Except Toronto prices peaked in Q1 2022. Interest rates were still at 0.25%. Canada was barely recovering from pandemic lockdowns that had crushed population growth.

Then 2023 happened. Canada added 1.2 million people. One of the biggest immigration years ever.

If demand drove prices, 2023 should've been the most expensive year in history. Instead, prices collapsed while population hit record highs.

Prices started falling before the first rate hike. You can't throttle credit with rate hikes that haven't happened yet. But you can watch speculation deflate the second investors smell trouble.

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Who Was Actually Buying

Investors made up over 70% of condo buyers during the boom. And most of these weren't buy-to-rent situations where the numbers worked. A 2023 CIBC study found investors were losing $597 per month on average. Negative cashflow. Every single month.

The math only worked if prices kept going up. Buy with 20% down, ride appreciation for three years, flip before closing, pocket the difference. No mortgage. No tenants. Just pure speculation.

Big Six banks financed the whole thing, knowing full well the rental math didn't work. That wasn't the point. The point was everyone making money while prices climbed. Until they didn't.

Now inventory's at levels not seen since the early '90s crash. The only other time it got this high was after the 2014 oil slump, right before Toronto got outed as a global money laundering hub. Turns out that was the healthiest this market would be for a decade.

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What Actually Got Built

Think about what a speculation-driven market creates. Not homes. Financial instruments that happen to have kitchens and bathrooms.

Micro-units with 500 square feet going for $700,000. Places where the rent will never cover the costs. Buildings designed for flipping, not living. Layouts that make sense on a floor plan but fail when someone tries to actually exist there.

The Bank's worried about construction starts dropping to 1990s levels. And yeah, that means fewer units getting built. But fewer units designed for speculation isn't the tragedy they're making it out to be.

Real housing happens when land values reflect what the people living on that land can actually earn. Not what speculators need to make their IRR targets in a credit bubble.

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The Part Nobody Wants to Say

Toronto's condo market wasn't broken when it collapsed. It was broken when it worked.

A housing market that requires continuous price appreciation isn't a housing market. It's a speculation market using housing as the underlying asset. The Bank of Canada just wrote that down in an official report. They described how the whole system depends on investor returns rather than people needing places to live.

They documented a Ponzi scheme. They just didn't use those words.

And now everyone's pointing at immigration policy like that explains it. Like 1.2 million people showing up in 2023 somehow caused prices to crash instead of spike.

The question isn't whether the market recovers. It's what gets built when it does. Will developers create actual housing that people can afford to live in? Or will everyone just wait for rates to drop, cook up another credit bubble, and run the same play?

Based on the last thirty years, I'm not holding my breath.

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What This Means for Real People

Average condo prices dropped from $790,398 in Q1 2022 to $680,146 in Q1 2025. That's 14% off peak, with TD Economics predicting another 10% down this year.

For buyers, that sounds great. Except banks are way tighter with lending now, and the units hitting the market are mostly 500-square-foot investor boxes that don't work for families. Inventory's up to 7.85 months worth, but it's not the kind of inventory most people actually need.

For investors already in, it's brutal. CIBC found 77% of investors with new condo mortgages were losing money by 2023. Carrying costs up 24%, rents up only 15%. The gap between what these places cost and what they can generate just keeps widening.

For renters, weird things are happening. Tons of units flooding the market means more options and rents actually falling in some segments. But those deals are mostly in the investor-grade micro-units, not the two or three-bedrooms families need.

The adjustment's messy. Construction workers lose jobs. Developers go bust. Banks write off losses. That's real pain hitting real people who just showed up to work every day.

But you can't build sustainable housing on a foundation of speculation. Someone actually has to live in these places and pay for them with money earned from work, not from flipping to the next guy in line.

That's what made this whole thing a Ponzi scheme to begin with. And the Bank of Canada just told us that in plain language. They're just hoping nobody noticed.