Why the incredible shrinking condo is about to become more popular
23 June 2017
There really isn’t much builders can do to shrink condominium units to
make them more affordable since some are already as small as 280 square
Peter Clewes, a principal at Architects Alliance, whose firm designed
what is being billed as Toronto’s first micro condo, Smart House, said
it’s really not possible to design anything smaller than that project’s
units—the popularity of which is a testament to just how much prices
have risen in Toronto’s condominium market.
But unlike in the detached home market in the largest cities, where it
has long been the practice to keep driving until you can afford
something, condo developers seem to have adopted a philosophy of
shrinking units until they can meet consumer budgets and bite-sized
Condominium sizes have been shrinking for the past decade, at least up
until the past two years. The average condominium in the Greater
Toronto Area was 892 square feet in May 2007, based on remaining
inventory at the time, but shrunk to 789 square feet by May 2015,
according to data supplied by Altus Group to the Building Industry and
Land Development Association (BILD).
Some analysts suggest the reversal during the past two years is because
of both downsizing boomers looking to move into highrises after selling
their detached homes as well as a market response to expensive
ground-level housing. BILD said the average highrise unit climbed to
793 square feet in May 2016 and 814 square feet a year later.
Speculation is rife in the industry that one of the unintended
consequences of Ontario’s new stronger rent control rules, which target
buildings constructed after 1991 and, therefore, new condos, is that
developers will push for smaller units because their tenants don’t stay
long term since they will eventually want to form families and need
Once they move out, a landlord can boost the rent above Ontario’s new limit
Once they move out, a landlord can boost the rent above Ontario’s new
limit, which is up to inflation and is capped at 2.5 per cent.
Benjamin Tal, deputy chief economist at CIBC World Markets, believes
this natural way to increase rents is one reason the government
extended rent control.
“I’ve heard this from developers that (building smaller units) is one
way to get your tenants to turn over,” he said. “However, the new type
of tenants could be families and older people so the turnover could go
down to an extent.”
rental units are smaller and shrinking
Shaun Hildebrand, senior vice-president at condo research firm
Urbanation Inc., said his firm breaks down the condo sector between
end-user resales and rental units and there is clear pattern that the
latter units are smaller and shrinking.
The average rental unit in the first quarter of 2017 was 724 square
feet while the average resale unit was 888 square feet, down from 816
square feet in the first quarter of 2010.
Brian Johnston, chief operating officer at Mattamy Homes, said one of
his first thoughts when the new rent control rules came in is what it
would do to larger units aimed at families.
You don’t want a family condo because they may be in it 10-15 years
“You don’t want a family condo because they may be in it 10-15 years.
If you’re renting out, you might not want a tenant to be too
comfortable,” said Johnston, adding he would understand if that was the
view of landlords. “The industry was pushing for increasing for rental
increases above the rate of inflation.”
At the same time, the rising price gap between detached homes and
condominiums, which reached an all-time high in 2017, has pushed more
and more families to look for cheaper alternatives to detached homes.
“The pendulum has been swinging into larger and larger units and they
will continue to when it comes to end users,” Johnston said.
Simplistically, it makes sense that landlords would want tenants who
will turnover quickly and those who rent small units fit that
description, said Derek Lobo, the broker of record at SVN Rock Advisors
Inc., which specializes in multi-family assets.
“But if you are going to rent out that apartment for the first time,
you are going to get the most you can the very first time,” said Lobo,
explaining that landlords looking for financing to build a rental
apartment complex need what’s called take-out financing to begin
construction and that’s based on today’s expected rental income, not
what an owner might get in three years.
“You don’t have time to raise rents over one, two, three years,” he said.
Lobo predicts rental market supply growth is going to split into two.
“Smaller apartments are going to get smaller and larger apartments are
going to get larger. Older wealthier people want those larger
apartments. They want to get rid of their house. Those people will not
go down in quality,” he said. “Young people are on the other end of the
spectrum. Young people live in the neighbourhood and old people live in
Jim Ritchie, senior-vice-president of sales and marketing at condo
developer Tridel Corp., said the shift toward larger units has already
happened, but market statistics are a lagging indicator.
“Product that is being completed was obviously sold three to four years
ago,” he said. “A shift now in the marketplace would not be reflected
Ritchie doesn’t buy into the notion that developers are going to
gravitate towards building smaller units, especially when it comes to
servicing people who want to buy and live in the unit.
“If you benchmark against a single home that’s $1.5 million, that’s not
affordable. People will look for alternatives that are out there,” he
said. “If we want to compete in that space, we need to grow the product
size, which we have been doing.”
He points out that the most popular units in Tridel latest development
in downtown Toronto ranged from 1,200 to 1,500 square feet.
Vancouver has long had rent controls that covered the entire market and
also allows rents to be raised above the limit once a tenant moves, but
University of British Columbia professor Tsur Somerville said the
shrinking size of condo units there is mostly a response to rising
“I really think the rational response (for landlords) is to rent to
people who you think will eventually buy like young professionals,” he
said. “The issue is that as expectations changes, the dynamics of
supply change. When things get so expensive for a home and further away
from (central cores), they start thinking about moving (into
condominiums). That process is happening in Vancouver.”
As a result, the long-term demand for larger units may stay strong as
baby boomers exit their houses, but Doug Norris, chief demographer of
Environics Analytics, doesn’t think micro condominiums or smaller units
are going away any time soon either because of land prices.
“I don’t think (millennials) will stay in those small units. They’ll
move back to the suburbs to build families,” he said. “But Generation Z
is of equal size to millennials. From now on, you will get a pretty
stable inflow into the housing market of young adults.”
What does it mean for would-be first-time renters?
Architect Clewes, who has been in the industry for 30 years, said
sacrifices are made when he’s designing the smaller units, though he
notes the Ontario Building Code stipulates room sizes so you can only
whittle them down so far.
“It’s really a studio apartment, so you are combining a living area
with a sleeping area,” he said. In a bottom-line situation, you can
have pullout Murphy bed. You have a small dinning room. A reasonable
kitchen, but you are going to have a lot smaller appliances.”
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