What can Toronto's real estate industry do to solve the city's big problem of small condos?

CBC

20-05-2025

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In Toronto, towers upon towers of small condo units fill block after block downtown. Condo sales across the board are slumping in Canada's biggest cities as supply soars and demand shrinks. And the hardest units to sell are often the tiniest.
Bachelor and one bedroom units in the Toronto area made up 20 per cent of condo sales in the last quarter of 2024, according to the Toronto Regional Real Estate Board. Bigger units, such as one bedroom plus den, two bedrooms and two bedrooms plus den, collectively made up 72 per cent of sales.
One bedrooms are also fetching less on the rental market — the average rent for a one-bedroom apartment in Toronto has dropped 5.8 per cent year-over-year, according to data from rental unit listing site Rentals.ca, while that decline is even steeper in some other Canadian cities.
Toronto-based real estate broker John Pasalis says one-bedroom and studio spaces are the hardest to move in the current market.
"Especially very small one bedrooms, under 550 square feet," he said. "Demand is very slow."
It's a trend that's been building for years, according to Christopher Wein, CEO of Ontario-based real estate development company Equiton Developments. Over the last five years, he says developers have been building units that are too small to be comfortable, and the realities of the market are catching up with the industry.
"Small is great from a price point perspective, but not if it's not functional, feasible or livable," Wein said, noting that the industry has figured out that it went too far in terms of the number of small units they made. Now, he says "the pendulum has to swing back."
As the city's condo-buying market switches from investors looking to flip small units for a profit or use as rentals to end users who actually want to live in the condos they buy, some builders, realtors and other industry insiders are re-evaluating what once worked and trying to figure out how the current supply of smaller floorplans can be reimagined to meet demand for bigger units. It's something experts say is doable, but complicated, expensive and very much dependent upon what stage of development buildings are in.
Structural hurdles
Wein says changing a condo's footprint is possible sometimes — he's redesigned several buildings in the past at various stages of the construction process, both with Equiton and other companies.
But once a building is finished, he says, swaps can be really difficult to make, whether its being done by a builder or a single condo owner hoping to merge two units.
"Now you are tearing things apart, you're doing a renovation," Wein said. "You have to look at how that affects not just the structural engineering, but also mechanical and electrical."
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Expansions require knocking down walls between units, which presents challenges. Wein says midrise buildings might have walls made of wood or steel, but most buildings over 12 storeys require concrete walls for support.
He says merging units in high-rise towers is often "so complicated, so expensive, and it's going to require so much engineering solution, that we just shouldn't bother."
In cases where Wein has removed walls, only part of the wall is made of concrete — then, it's a matter of finding the gaps and making the floor plan functional between the two spaces. But this still requires lots of work and results in waste — for example, ripping out one fully-functional kitchen which means all those fixtures and materials would end up as scrap.
Pasalis, the realtor, says merging units does happen occasionally, but mostly in the luxury condo market.
The average person looking to buy two units and merge them — especially two previously occupied condos rather than units in a brand-new building — would likely have a tricky time finding a place where that's possible, he says.
"The probability of two units going on the market at the exact same time for sale that are well suited to be merged … that will be virtually zero."
Financial issues and red tape
On top of difficult structural challenges, experts say the math also doesn't add up in most cases.
According to Pasalis, smaller condos sell for more per square foot than bigger ones. Buying two small condos might cost about $1.2 million, he estimates, plus more to renovate and merge them. For close to that amount, he points out, you could buy a semi-detached house in Toronto's downtown, and of course, it would cost far less to simply buy a condo pre-built with multiple bedrooms.
The only way the option might become viable is if the price of small condos falls significantly and bigger two or three bedroom units keep their value, Pasalis says, as folks buying and renovating condos would actually gain something from their investment.
Helen Stopps, an assistant architectural science professor at Toronto Metropolitan University, says even if buyers could stomach the price and the extensive renovations required to merge smaller condos into larger ones, red tape might stop construction anyway.
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Condos are built on a shared ownership model, where people own their individual units but invest and make decisions about the overall building as a group. Most construction in condos needs to be approved by the condo board that oversees building management, which Stopps says can make getting this kind of renovation done "incredibly hard."
The cases where it makes the most sense sense is on a mass scale when people aren't living in the building, she says. So that means either in the pre-construction phase while the developer is still in control, or in vacant buildings where a single company or collective has bought the entire condo.
What happens to these units, then?
Even if small condo units sit on the market for a while, Stopps says they'll eventually be sold or rented — though she notes prices might have to fall substantially before that happens.
On some level, that means working with a small space to make it more livable. Things like movable walls or dividers, reconfigurable furniture and off-site storage units could all make smaller spaces more functional, Stopps suggests. Adding more shared amenities or public spaces to condos, she says, could also help people get some of the extra space they crave.
Stopps also says it's up to provincial or municipal governments to incentivize developers to build more livable housing.
Allowing developers to "do whatever they want in order to maximize their profits" is part of why we ended up with so many tiny condos in the first place, Stopp says, noting that because smaller units can be sold for more money per square foot, that's what developers choose to build.
A "density bonus" from the government, or lowering development charges for condos that are planned with bigger units could help push developers away from micro-units, she says.
Developers responding to buyer demand
On the development side, Wein says he and some other developers have started changing future projects where necessary to make units bigger in response to buyer demand.
He notes that Equiton's project at 875 The Queensway in Toronto is a good example. Designs, zoning and approval were all done when Wein says he went back to the drawing board after realizing the units were too cramped and weren't matching what buyers wanted.
That project, expected to be move-in ready in 2027, will now have 152 units instead of 179, with each unit becoming about 10 per cent bigger.
Wein says it's the smart move, given the demand for bigger spaces doesn't seem to be going away.