End of the micro condo? Why this housing developer is building bigger units
After years of shrinking condo units, Toronto-based Devron Developments is bucking the trend
For years, Mick O'Brien dreamt of living in downtown Toronto so he could walk the city, cheer on the Blue Jays and visit the National Ballet with his grandkids, just as he would with his two daughters.
But O'Brien and his wife — who currently own a 2,400-square-foot three-bedroom home in Bradford, Ont., — struggled to find a suitable place in a city where condo sizes have been shrinking. Many were too small, and the more sizable one- and two-bedroom units are aging.
"You'd have to do a major renovation," he told Cost of Living. "So here again, you're going to spend $1.5 million minimum to get a two-bedroom anything and then probably spend another ... $400,000 to renovate it."
Earlier this year, O'Brien and his wife found a condo in 101 Spadina, a soon-to-be built development in Toronto's entertainment district. The unit boasts two bedrooms, 800 square feet and 10-foot ceilings. They bought it for $1.7 million as a pre-construction sale — and O'Brien estimates it'll be another six years before they move in.
"I really can't imagine a better spot in all of Toronto," O'Brien said.
It's hard to come by such a big unit in the downtown core — especially in a new build. According to Statistics Canada data, the average size of condos built in 2016-2017 was 665 square feet. That compares to an average of over 1,000 square feet for buildings constructed from 1981 to 1990.
But the company behind O'Brien's new home, Devron Developments, hopes to shake up the market. A majority of the units at 101 Spadina will be 800 square feet with two bedrooms.
"There's a lot of people who think about condos in Toronto as 'a place I'll live in until I can move out and buy something on the ground,'" Pouyan Safapour, co-president of Devron Developments told Cost of Living.
"That should be [a] red flag, because that's not people's impression or opinion of apartments or flats anywhere else in the world."
Why condo sizes shrunk
John Pasalis, a real estate broker in Toronto, says condo units shrunk in response to affordability concerns as smaller units are cheaper to buy. It was also a way for first-time home buyers to enter the market.
But these condos — some as small as 300 square feet — attracted the attention of a different kind of buyer.
"As investors started to make up a bigger share of the condominium market, they wanted more affordable units. They needed a lower down payment. So one way to make the units less expensive is just to make them smaller," said Pasalis, the head of Realosophy.
Investors bought the diminutive units in pre-sales, which allowed the developers to reach construction sooner, Pasalis said. He says about two thirds of all micro-condos in Toronto and Vancouver are owned by investors.
But as interest rates spiked in recent years, the demand for these tiny condos began to shrink — and a lot of investors put them on the market.
Now, thousands of units are up for sale — and buyers like O'Brien are looking for something bigger.
"The condo market basically has a record number of condominiums available for sale, and that's been going on for the past two or three months — just about 11,000 units for sale, which is the highest for any month in any given year ever," Pasalis said.
Safapour says the sluggish market now has people in the industry thinking differently about what they're building.
"When you have market corrections in any industry … [people] start to re-evaluate merit and value and say, 'OK, where did things start to deviate from really actually providing value?'"
Lifestyle over market
When developing its latest building, Devron polled 1,000 people on perceptions of condo living in the Greater Toronto Area. The survey, conducted in collaboration with Angus Reid, found 93 per cent of respondents said that Toronto needs better-built condos that suit people's lifestyle needs.
Additionally, 96 per cent of respondents also agreed that developers have a responsibility to build quality homes that contribute to Toronto's livability and infrastructure.
O'Brien's new condo is at the centre of his retirement plan. When they make the move from the suburbs, they'll be downsizing. But the unit will still have the space to host their kids and grandkids.
Jeremiah Shamess, an executive vice-president at commercial real estate firm Colliers, says it's more costly for developers to construct buildings with a high number of larger units — especially three bedrooms.
But developers are taking note of projects like Safapour's, he said.
"He's starting something that many developers would like to be the future," Shamess said.
"There are some of the newer developers and some of the lesser known names I've talked personally to and they're like, 'We like his thesis. We want to see if it works,'" Shamess said.
Call for lower construction costs
Toronto realtor Pasalis says the investors who bought tiny condos in pre-sales are finding the units are worth less than they paid four or five years ago, and he thinks those prices won't recover any time soon.
"When they do the math on the rents, it just doesn't make sense financially," Pasalis said.
In order for the condo market to adjust and build family-sized units, Pasalis thinks the costs ultimately need to come down.
That includes costs associated with construction or municipal development charges levied on newly built condos in the City of Toronto. The federal government, or the provincial government could also relax and remove HST on new housing, he said.
"The cost has to come down if builders are going to start building a different type of product that caters to end users," Pasalis said.
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Produced by Ellis Choe
